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Deposit of Federal Tax Withholding From Participant Distribution


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In the past we've completed the 8109-B coupon and instructed the client to deposit the federal tax withholding with the bank that they have their business checking account with; however in the area that we're in most all of the local banks are now refusing to accept the funds (some will if it's done electronically but most of our clients don't want to go this route). Has anyone else run into this? Any suggestions? We've had some of our terminating plans mail in the check to the address on the back of the coupon just to get the funds in.

Any input would be greatly appreciated.

Thanks!

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Has anyone else run into this?

We have.

We've had some of our terminating plans mail in the check to the address on the back of the coupon

I think this is the best alternative.

...but then again, What Do I Know?

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I have always had withholding checks issued to the "Financial Agent - Federal Tax Deposit Processing", sent to me (TPA) and I mail in the deposit and 8109-B coupon - with a self-address stamped return envelope and request (and have nearly always received) a "receipt stamped" copy of my transmittal letter. Has worked well for me, but I also deal exclusively with "micro" plans and a limited number of "cash" distributions requiring withholding. However, it's not much extra (billable) effort - and can sure save a lot of aggrevation down the line!

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  • 4 months later...
I have always had withholding checks issued to the "Financial Agent - Federal Tax Deposit Processing", sent to me (TPA) and I mail in the deposit and 8109-B coupon - with a self-address stamped return envelope and request (and have nearly always received) a "receipt stamped" copy of my transmittal letter. Has worked well for me, but I also deal exclusively with "micro" plans and a limited number of "cash" distributions requiring withholding. However, it's not much extra (billable) effort - and can sure save a lot of aggrevation down the line!

This is how I have always handled my Federal Tax deposits coming from a plan's brokerage account. Now that the IRS is discontinuing the use of Form 8109-B coupons, how will you handle the deposits?

I checked with one of the brokers who handles some of our PS/401k plans. I thought maybe we could set up an EFTPS account using the plan's brokerage account. According to the broker, that won't work. He said they could wire the tax deposit to the IRS for a $30 fee. Sometimes the fee could be more than the tax deposit, so I don't want to use this option.

Our office has talked about having the broker write a check to the plan sponsor for the amount of the tax deposit. Then do an EFTPS deposit from the plan's sponsor's business account. But then there's the chance of having the plan sponsor entering this deposit as a "941 deposit" instead of a "945 deposit". That can be a nightmare to get corrected.

Anyone have a suggestion? I would really like a solution where I have control over the deposits to make sure they are made timely.

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Anyone have a suggestion? I would really like a solution where I have control over the deposits to make sure they are made timely.

Still thinking about it. One solution is to use Penchecks or a similar processing service to make the payment and deposit for you, but then you're back to paying fees. It appears that you might be able to pay up to $2,500 with the return; I found this in the proposed rule but haven't been able to confirm that it would work for us.

For example, under the proposed regulations, employers must deposit income taxes withheld from wages and taxes under the Federal Insurance Contributions Act (FICA) (collectively, “employment taxes”) by EFT unless the existing de minimis rule under § 31.6302-1T(f)(4) applies. Generally, the de minimis rule for employment taxes allows employers with a deposit liability of less than $2,500 for a return period to remit employment taxes with their quarterly or annual return. Employers below the $2,500 threshold may remit the employment taxes with their tax return, may voluntarily make deposits by EFT, or may use other methods of payment as provided by the instructions relating to the return.

Ed Snyder

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Bird - how could it work? There's no tax return filed by the Trust with which such payment could be submitted, right? But if you can find a way to make it work, I'll be the first in line to nominate you for sainthood!

Pardon me for jumping in, but you can submit your payment with Form 945-V when you file Form 945 after the end of the year.

Our office has never done this though. We've always submitted the deposits with a tax coupon when the distributions were made.

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But would this be acceptable? Pardon my ignorance, as we've never done 945's. I thought a 945 was an annual return? If you distribute a participant's benefit in any given month, can you then submit the withholding (for de minimus amounts) on a 945-V filed with a 945 any time you want, on multiple dates throughout the year? It somehow seems unlikely. Or of course, even if possible, at some point it must end up being more work than just doing the @$%) things electronically...

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Page #3 of the 2009 945 instructions indicate that you can send the withholding in with the filing using the 945-V, but only if the w/h is under $2500, we have also had clients use this option when applicable.

(see attached)

Let's say you decide to use this option, and you have tax w/h totaling $1,500 from distributions occuring throughout the year. Then in December, you have a big distribution with $2,000 in tax w/h. If you send all your w/h of $3,500 in with the Form 945, it's now over the $2,500 limit. Is the client penalized?

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Let's say you decide to use this option, and you have tax w/h totaling $1,500 from distributions occuring throughout the year. Then in December, you have a big distribution with $2,000 in tax w/h. If you send all your w/h of $3,500 in with the Form 945, it's now over the $2,500 limit. Is the client penalized?

There's the problem, and the reason that we've always submitted deposits throughout the year even when we expect them to total less than the threshold. That, and consistency, so we don't have to try to keep track of who owes money at the end of the year and who doesn't. We'll probably take the path of least resistance and in most cases submit the WH at the end of the year, but I can see it getting FUBARed. Additional incentive for a self-directed platform that handles distributions and withholding.

Ed Snyder

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Ok, can I ask a stupid question. I don't have a good understanding of this whole issue, so I'm trying to work through it. Is it really easier to fill out a paper 945, with a 945-V voucher, and submit a check (and most of our small plans don't have a trust checking account, despite our urgings) with each distribution, than it is to do it electronically? I'm having a hard time understanding which option is really more work for the parties involved, and maybe that depends entirely upon what the asets are, as well as the particular arrangements with the custodian.

On one hand, you have larger, more automated platforms, and when a distribution is made, they submit the withholding anyway. So these shouldn't be a problem.

So let's say it is an investment where the funds are liquidated, and a check for $10,000 is sent to the Trustee/PA. Let's further assume that they had two checks issued - one for $8,000 to sign over to the participant, and one for $2,000 for the withholding to submit to the IRS.

Apparently there may now be two options. One is to fill out a 945 and 945-V, and submit the $2,000. Will the IRS accept the check endorsed over to them by the Trustee/PA, or must it be in some other form? If they won't accept it endorsed, what would you do?

Now let's say either voluntarily, or depending upon the interpretation of the regs, as a mandatory item, it is done electronically. What are the steps? Once any proper id# and an appropriate account (?whatever that is?) is opened, is it then more difficult, less difficult, or roughly the same amount of work? I've never been involved in the "nuts and bolts" processing of the actual transfers of money, so I'd appreciate any input you might have. Thanks!

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What are the steps?

You're right, for a platform they are probably already doing it electronically under their own ID; I don't think this affects them or our functioning with them.

For others - it depends. Ideally, under present conditions, you want them to cut one check directly to the participant and one check for withholding. We used to have that second check cut to the plan sponsor, who would then deposit it to their business checking account, and then write a check to their bank and make a tax deposit using Form 8109 (usually 8109-B "blank" that we prepare for them). (Tax deposits clear overnight so they have to have clear funds when the deposit is made, which means they won't take outside checks which means it has to be run through the business account.) Brokerage firms and brokers and their assistants vary in competence, but let's say they generally fall at the lower end of the bell curve in competence and cooperation. We try to take that out of the equation by preparing a "letter of instruction" spelling this out; sometimes it needs a signature guarantee and sometimes not. We've run into various problems with getting the deposits handled properly; apparently some banks can't handle tax deposits and of course depositing a check and writing another one is a challenge for some people, so this is often screwed up in one way or another. So, we've taken to having the second check cut to Financial Agent (the Federal Reserve), having it sent to us, and sending it to the address on the back of the 8109-B, St. Louis I think. That seems to work fairly well.

Making the deposit electronically would go back to having the client take two steps, doubling the already good chance for a screw-up, as well as having someone set up the electronic stuff online. I don't really blame them for wanting it done electronically but for occasional/rare events it's a pain. Penchecks will take a check from the trust and write the check to the participant and handle the withholding for (I think) $50, which is very reasonable, but the reality is that you have to take some time to get an account set up for the plan with them and then get the check to them and it just seems silly when all you're trying to do is pay someone $372.85 or whatever.

Ed Snyder

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  • 3 weeks later...
Guest JPIngold
I have always had withholding checks issued to the "Financial Agent - Federal Tax Deposit Processing", sent to me (TPA) and I mail in the deposit and 8109-B coupon - with a self-address stamped return envelope and request (and have nearly always received) a "receipt stamped" copy of my transmittal letter. Has worked well for me, but I also deal exclusively with "micro" plans and a limited number of "cash" distributions requiring withholding. However, it's not much extra (billable) effort - and can sure save a lot of aggrevation down the line!

Our office has talked about having the broker write a check to the plan sponsor for the amount of the tax deposit. Then do an EFTPS deposit from the plan's sponsor's business account. But then there's the chance of having the plan sponsor entering this deposit as a "941 deposit" instead of a "945 deposit". That can be a nightmare to get corrected.

My concern about doing this has always been having those tax dollars run back through the plan sponsor's operating account. I thought I heard an IRS official once say at an ASPPA conference that the Service is not overly keen on seeing qualified plan money going back into the sponsor's bank account, even if it is only for a day for a tax deposit. Does anyone have concerns about this given these new conditions in the market (e.g. banks not accepting deposits, no tax coupons, etc.).

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My concern about doing this has always been having those tax dollars run back through the plan sponsor's operating account. I thought I heard an IRS official once say at an ASPPA conference that the Service is not overly keen on seeing qualified plan money going back into the sponsor's bank account, even if it is only for a day for a tax deposit. Does anyone have concerns about this given these new conditions in the market (e.g. banks not accepting deposits, no tax coupons, etc.).

They may not be keen on it but it is definitely permitted. I don't have a cite, sorry.

Ed Snyder

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  • 3 months later...

i need to revive this thread. asppa issued an asap wherein they suggest that the TPA open an "omnibus" account in which you deposit the withholding amounts and then provide electronic payment to the IRS. We are an RIA also and in my opinion this will trigger the SEC custody rules whereby we would be required to have a surprise audit. anyone in the same situation or handling this in that manner?

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We're doing it - just processed the first one successfully yesterday. I don't know anything about an SEC audit but we're not an RIA.

As an aside, I can't say the process was as easy as I had hoped. The instructions are not quite updated for the latest version of the software, and I just have the general impression that software developers are required to take an illogic course somewhere in their training.

Ed Snyder

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The instructions are not quite updated for the latest version of the software, and I just have the general impression that software developers are required to take an illogic course somewhere in their training.

Generally those classes are taught by the same people who write IRS instructions! :lol:

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Similar to Bird (I think), I set up a separate business checking account (TPA, Inc. FITW Paying Agent) and enrolled as a "Batch Provider" under EFTPS (Bird was also correct that the program is not as "intuitive" as it might be and the initial "lead time" is a bit protracted).

Processed my first deposit "payment" earlier this week and - so far, so good. Think this will be kind of like electronic filing of Forms 5500. Once you get things "up and running", should work as well as the 8190-B coupon approach. Plus, you can now actually "inquire" regarding deposit history.

Again, I work with "micro" plans and not a lot of mandatory withholding activity.

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Guest Jennyb473

I'm reading all of this post and thinking "why is it so hard?" Maybe my office does things different or something, but in 2009 we got tired of getting IRS letters from clients who were not submitting their tax deposits in a timely fashion - we would instruct the custodian (Fidelity) to write 2 checks, 1 to the participant and 1 to the plan sponsor for the taxes. They were instructed to take the tax check to the bank, deposit into their corporate account and ask the bank to file the 8109 as a 945 deposit. A few of our larger clients got snagged for not filing timely and we found out we should have been filing a 945A instead of a 945. So to make sure the tax deposits were happening, and happening faster, we just set up EFTPS for all of our clients so that the taxes could be pulled directly from the trust account, bypassing sending a check to the client and expecting them to make the deposit quickly. We set up all of our clients on EFTPS, all we had to have them do was forward the PIN letter they received so we could complete the enrollment. We actually file on their behalf but straight out of their trust account - we still send a request to the custodian for the participant check, but we do the EFTPS as a 2nd step instead of requesting 2 checks. It took a little research and patience but after carefully explaining what we were trying to do to the trust company we finally got the correct routing numbers, etc so we could set up the EFTPS.

Is that not a viable option for others?

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  • 2 weeks later...
Similar to Bird (I think), I set up a separate business checking account (TPA, Inc. FITW Paying Agent) and enrolled as a "Batch Provider" under EFTPS (Bird was also correct that the program is not as "intuitive" as it might be and the initial "lead time" is a bit protracted).

Processed my first deposit "payment" earlier this week and - so far, so good. Think this will be kind of like electronic filing of Forms 5500. Once you get things "up and running", should work as well as the 8190-B coupon approach. Plus, you can now actually "inquire" regarding deposit history.

Again, I work with "micro" plans and not a lot of mandatory withholding activity.

We just set up a separate checking account and enrolled as a Batch Provider. I'm getting ready to process my first distribution and have a question about the client authorization. Did you have the client sign Form 8655? If not, what form did you use? And does the form have to be submitted to the IRS ... or just kept on file in our office.

I think once we get up and running with this system it will be better than mailing paper coupons to the IRS and guessing what date they were deposited.

Thanks.

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Did you have the client sign Form 8655?

Yes, and just put it in the file. (I enrolled the first one without having the form in my hands - gasp.)

I think once we get up and running with this system it will be better than mailing paper coupons to the IRS and guessing what date they were deposited.

Yup. We did this rather reluctantly but having this end of it under our control has its advantages.

Ed Snyder

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