paying 20% withholding on a distribution

[Santo Gold]

Is there an easy online way to electronically pay the 20% amount withheld on a cash distribution? We have a small client who has brokerage accounts for the people in the plan. This is the first time they will have a cash distribution. The brokerage account will not pay the 20%. The client does not want to open up a bank account for what will likely be a 1 time only transaction. Payroll (correctly) will not accept deposit of the 20% and then transmit it to the IRS.

If the 20% was under $2,500, it is allowable to pay it at year end when filing Form 945. But, the amount is well above that.

I've read on other post that Penchecks could work. But is there an IRS link that could be used to pay the tax online? Even if it costs a few $$$, that might be OK.

Thanks

[Lou S.]

We've gone to using Penchecks for non-platform distributions strictly for withholding issues.

Otherwise link an account with EFTPS https://www.eftps.gov/eftps/

[hr for me]

EFTPS is what we use in the payroll world to remit taxes but I don't have knowledge on whether withholding on distributions could be processed through there. (I am not seeing a tax type that jumps out at me that would work)...You generally need an EIN/SSN setup on there along with the tax report type to credit the withholding to. I would think you could use the employers EIN and remit...but then it gets too deep for me to think how the employer would report it correctly back to the employee's taxes at the end of the year.

[ESOP Guy]

EFTPS is what we use in the payroll world to remit taxes but I don't have knowledge on whether withholding on distributions could be processed through there. (I am not seeing a tax type that jumps out at me that would work)...You generally need an EIN/SSN setup on there along with the tax report type to credit the withholding to. I would think you could use the employers EIN and remit...but then it gets too deep for me to think how the employer would report it correctly back to the employee's taxes at the end of the year.

I am NOT an expert but I seem to recall using the employer's EIN is a problem. I seem to recall that the IRS reconciles the deposits to all the forms sent in. So if you deposit on the sponsor's EIN and file the 945 on trust's EIN you will get a letter asking where the deposit is. The sponsor will get a letter asking why the deposits exceeds the various reports say ought to be deposited.

[Bird]

We use EFTPS; we have a dedicated bank account, and the program, and remit under the plan EIN...so far so good. (The WH check is payable to us; we deposit it, wait for it to clear, then submit thru the system.)

I believe that you may indeed submit using the employer's ID, but it is not recommended. Your plan WH taxes become subject to the same schedule as regular payroll, and then there is the issue of year-end reporting. It's almost sure to get all bolloxed up with the 941 and 945 type reporting, as noted above.

[RatherBeGolfing]

I will echo Bird's comment. Do not use the employers EIN, it WILL get messed up when you get the point of doing Forms 1099, 945, 1096.

Other than that, it is very simple.

1. Set up a bank account for your firm to use as dedicated account for tax deposits

2. Set yourself up as a batch provider with EFTPS (simple and free)

3. Have the client execute Form 8655 to authorize you to act as a reporting agent. Fax the form to EFTPS to enroll the client using the PLAN EIN

4. tax check is paid to you for the electronif deposit

5. submit the taxes to EFTPS on behalf of the client

It really is very simple and does not take much time at all. We do this for all of our non-platform clients and it is a great way to show clients how you make life easier for THEM

[BG5150]

^ does doing something like that put the TPA in a fiduciary position in any way?

[RatherBeGolfing]

^ does doing something like that put the TPA in a fiduciary position in any way?

In my opinion, no. The TPA has no discretionary authority here. All you are doing is making an electronic deposit of the withheld taxes via EFTPS.

Do you add a layer of liability because you accept the responsibility to make the deposit? Yes. But as service providers we take on responsibility all the time, this is just another example of it. you should be covered for any potential loss due to employee theft under your normal professional policy (and the odds of one of your employees escaping with a tax deposit are probably extremely low)

[Bird]

I'll return the favor and echo RatherBeGolfing's comments. Sometimes/often it's a lot easier just doing something yourself and accepting some (largely perceived) liability instead of trying to get a client to do it, having them screw up, and then fixing it.

[Mike Preston]

Echo squared. Been doing it that way for years. It is our position that withheld taxes are not plan assets. So while I agree that there is liability associated with doing it this way, the liability is not fiduciary with respect to the plan, only the Plan Sponsor.

[SOkrasinski]

We've gone to using Penchecks for non-platform distributions strictly for withholding issues.

Otherwise link an account with EFTPS https://www.eftps.gov/eftps/

Hi Santo Gold, as Lou S said this is exactly what we do at PenChecks Trust, especially for non-platform plans. I’d be glad to help you. Please PM me if you’d like to learn more about our Distribution Service.