Payment of Federal Tax Withholding During The Year

What is the procedure for an employer to remit federal taxes withheld from a 401(k) distribution during the year?  Must the employer enroll with EFTPS and do it electronically or can a physical form be filed with the payment attached?  We realize that Form 945 can be filed at the end of the year with the payment if the total amount withheld throughout the year is less than $2,500, but it's very likely that amount will be exceeded, so we'd like to pay the withheld amount from the current distribution at this time.  Also, is there a deadline for when such a payment must be made?  All help is greatly appreciated.  

This is something we do for our clients.  We have a master EFTPS account and process the payments through a dedicated bank account.   The alternative is to have each client enroll (I have one client who does this but the thought of some of my clients trying to do this is...comical, but that understates it), or outsource it to Penchecks. 

I thought you were not allowed to send checks, period. 

The due date for smaller amounts is the 15th of the following month.  Larger amounts have different schedules going to as short as...maybe the next business day; don't recall the distinction between "smaller" and "larger" off the top of my head but I believe it is Pub 15 that covers all that.

Like @Bird, we have a master EFTPS account and we do it for our clients.  It is just much easier.  Otherwise the plan has enroll with a plan account and make deposits electronically.  Unless you do a ton of distributions, you are going to have an account with a $0 balance that is probably going to just eat up monthly fees, unless you have a friendly bank that will give you a free account to carry a $0 balance....

I believe the amounts / schedules are

less than $50k in lookback period (last year) - Monthly schedule

$50k or more in lookback period - semiweekly schedule (Wed-Fri due Wed, Sat-Tue due Fri)

$100k or more due the next day, and you are now semiweekly schedule for the rest of the year and next year. 

I think the $100k accumulates each deposit period, so if you are a monthly schedule and and withhold $50k in the first and third week of a month, your deposit is now due on the next day and you are semiweekly schedule for the rest of the year.  But, if you withhold $50k in the first week of two consecutive months, you don't hit $100k for either period so you are still monthly for the year but semiweekly for the next year.

I've never had a check returned from the US Treasury.  I've done withholding with an estimated tax deposit on the Participant's behalf.  I report $0 withholding on the 1099-R.

My CPA gives me Estimated Tax coupons which I send in with a check.  Never a problem.

9 minutes ago, imchipbrown said:

I've never had a check returned from the US Treasury.  I've done withholding with an estimated tax deposit on the Participant's behalf.  I report $0 withholding on the 1099-R.

My CPA gives me Estimated Tax coupons which I send in with a check.  Never a problem.

 

How many times have you done it?  I have had clients do this without talking to us first and it has taken many calls to the IRS to fix it.  You may be one of the lucky few that didn't have this cause an issue.  They normally wont return the check, but most of the time it wont be correctly applied as a 945 to the plan.

3 hours ago, RatherBeGolfing said:

How many times have you done it?  I have had clients do this without talking to us first and it has taken many calls to the IRS to fix it.  You may be one of the lucky few that didn't have this cause an issue.  They normally wont return the check, but most of the time it wont be correctly applied as a 945 to the plan.

I think he's saying he ignores the mandatory 20% withholding requirement and has the participant make an estimated payment; no 945 required.  Can't say I've never seen a client flout the mandatory requirement but can't say I would make a policy of it either.

I've withheld the mandatory 20% and remitted it with Form 1040-ES.  Half a dozen times?  Last one was early 2018.  NOT saying this is the right way to do things.

I use the same form and write a check for myself for LLC estimated tax.  Last one was low $x,xxx.  No correspondence received.  A thank you note would be nice :-}

On 2/22/2019 at 3:15 PM, imchipbrown said:

I've withheld the mandatory 20% and remitted it with Form 1040-ES.  Half a dozen times?  Last one was early 2018. 

That's what I thought.  You are not really withholding, you are paying 100% and immediately making an estimated payment.  The end result is the same but...it's not withholding.

On 2/22/2019 at 3:15 PM, imchipbrown said:

NOT saying this is the right way to do things.

Definitely not.  For better or worse, there are no consequences* to not following the mandatory withholding rules, but as noted above, I wouldn't make it a policy.

*I think that a participant would have to initiate some action, saying "you didn't withhold 20% and you have to pay it."  But the trustee would then counter with "we overpaid you and you owe us 20%."  As far as I know the IRS doesn't enforce this at all.

The taxes were paid, so no one really has a claim on additional funds. 

That said, I think the plan fiduciary and by extension the service provider could still have an IRS problem.  The plan is required to withhold and deposit the taxes.  This is supposed to be done electronically via EFTPS with the appropriate 1096/1099/945 to report the transactions.  Doing estimated tax deposits circumvents the plans reporting requirement. The employee is supposed to be able to take his/her W-2 and 1099-R and report that on his/her tax return.  I could see where a less than financially literate employee could screw their tax return up because things weren't done the right way.

I also think its a liability to do it this way.  It is giving the IRS an excuse to dig deeper for more errors, and even if there are no other errors its a PITA and a waste of time. 

And I have had a check returned to a client by the US Tres.

With a penalty assessed for failure to pay electronically.

(Client didn't believe me that it had to be paid electronically)