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Small-biz tax filing eased
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November 27, 2000: 5:07 p.m. ET
Small firms can pay employment taxes quarterly under new rule for 2001
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NEW YORK (CNNfn) - Small-business owners could pay employment taxes four times a year instead of 12, under a rule change announced Monday by the Internal Revenue Service.
The change takes effect Jan. 1. The IRS said it would publish detailed regulations in a few days.
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This creates a ripple effect for small business owners. There are fewer payments. There is less paperwork. There are fewer chances for mistakes.
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Charles Rossotti
IRS commissioner |
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At present, the rule affects employers who pay less than $2,500 per quarter in federal employment taxes. The change affects requirements for about one million businesses, the IRS said, out of a universe of some six million employers. In all, the businesses affected by this change deposit $6.6 billion, about 13 percent of the $52.7 billion in total employment tax deposits.
The tax agency would not estimate the size of the businesses affected by the change, but one tax pro said it would apply only to the smallest companies.
"Once you get above, say, three employees or four employees, you're going to have about that amount to pay in," said Phyllis Borghese, government affairs representative of the National Association of Tax Practitioners, a professional group.
Tax deposits include employees' own income taxes, withheld from their pay, plus the employees' Social Security and Medicare taxes, plus the employer's share of Social Security and Medicare, Borghese said, adding, "The amounts quickly add up."
Although many small employers will be too large to benefit from this increase, Borghese called it "the right way to go. It will be helpful to the truly small business, and that's what it was intended for."
IRS Commissioner Charles O. Rossotti said the rule would cut red tape and simplify a complex filing requirement.
"This creates a ripple effect for small-business owners," Rossotti said in a prepared statement. "There are fewer payments. There is less paperwork. There are fewer chances for mistakes. And it frees up valuable resources for small businesses and the IRS."
If there is a danger in the change, it is that these very small employers will view the money as working capital, "a delicate line that should not be crossed," Borghese said. "These are fiduciary funds. As the amount accumulates, if the business doesn't have good accounting procedures, the money may not be there at the end of the quarter."
She urged employers to take care with such funds. "They should mentally deduct, or physically segregate, the amount that doesn't belong to them" so the owner avoids tax trouble.
Until now, quarterly filing had applied only to employers who paid less than $1,000 quarterly, a standard that had been in place since June 1998.
The qualifying small businesses may pay the employment taxes when they file Form 941, "Employers Quarterly Federal Tax Return." 
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