Corporations are generally required to pay their Form 1120 tax liability electronically, primarily through the Electronic Federal Tax Payment System (EFTPS).
Understanding Your Form 1120 Payment Obligation
When it comes to paying your corporate income tax reported on Form 1120, the Internal Revenue Service (IRS) mandates that corporations use electronic funds transfer for all federal tax deposits. This includes not only corporate income tax but also employment and excise taxes. This requirement ensures efficient and timely processing of tax payments.
Primary Method: Electronic Federal Tax Payment System (EFTPS)
The most common and generally required method for corporations to make electronic fund transfers for their federal tax payments, including Form 1120 balance due, is through the Electronic Federal Tax Payment System (EFTPS). This system allows businesses to make secure and convenient tax payments online or by phone.
How to Use EFTPS
Paying your corporate taxes via EFTPS is a straightforward process, but it requires initial enrollment. Here are the general steps:
- Enroll in EFTPS:
- Visit the official EFTPS website or call EFTPS to enroll. You will need your Employer Identification Number (EIN), business name, and bank account information.
- The enrollment process typically takes about 5-7 business days, as your Personal Identification Number (PIN) will be mailed to you for security purposes.
- Receive Your Credentials:
- Once your enrollment is complete, you will receive your PIN and an internet password (if enrolling online) to access your account.
- Schedule Your Payment:
- Log in to EFTPS using your EIN, PIN, and password.
- Select the type of tax you are paying (e.g., Form 1120 corporate income tax).
- Enter the payment amount and the date you wish the payment to be debited from your bank account. You can schedule payments up to 365 days in advance.
- Get Confirmation:
- After scheduling a payment, you will receive an EFTPS confirmation number. It is crucial to save this number as proof of payment.
Other Electronic Payment Options
While EFTPS is the primary and highly recommended method for corporations, other electronic payment options are available that satisfy the electronic funds transfer requirement:
- Direct Debit (Electronic Funds Withdrawal) through Tax Software: If you e-file your Form 1120 using tax preparation software or through a tax professional, you often have the option to authorize a direct debit from your bank account for the balance due. This method is convenient as the payment information is submitted along with your tax return.
- Credit or Debit Card Payments: While less common for large corporate tax liabilities due to processing fees, you can pay federal taxes by credit card, debit card, or digital wallet through third-party processors. However, this method typically incurs a processing fee.
Key Considerations for Corporate Tax Payments
- Payment Due Dates: Ensure you are aware of the specific due date for your Form 1120 payment to avoid penalties. Generally, corporate income tax is due on the 15th day of the fourth month after the end of the tax year (e.g., April 15 for calendar year filers).
- Underpayment Penalties: Corporations may face penalties if they do not pay enough estimated tax throughout the year or if they don't pay their balance due by the deadline.
- Record Keeping: Always keep meticulous records of your tax payments, including confirmation numbers from EFTPS or other payment platforms.
