Moving to simplify a major area of tax administration, the IRS said a change announced this week will allow more small businesses to make employment tax payments on a quarterly basis, rather than on a monthly basis.

Under the new rules, which take effect Jan. 1, 2001, the IRS will allow businesses with less than $2,500 in quarterly employment taxes to make payments every three months. The current standard allows quarterly payments only for businesses with less than $1,000 in quarterly employment taxes.

The change will impact about 1 million businesses, according to the IRS.

"We have lowered a major hurdle for small businesses by eliminating a complex filing requirement," said Commissioner Charles O. Rossotti. "The new standard will reduce the paperwork and red tape that small businesses face."

The IRS expects the move to decrease notices to small businesses by about 70 percent because there will be fewer deposits. In addition, the agency said that because the change will reduce the frequency of deposits, small businesses will encounter fewer mistakes and fewer penalties, and that quarterly payments will help small businesses on cash flow issues.

Small businesses with employment taxes that are less than $2,500 per quarter can pay them when they file Form 941, "Employers Quarterly Federal Tax Return." Under the new regulations, only employers with employment taxes of $2,500 or more per quarter must deposit the tax with an authorized financial institution, the IRS said.

-- SmartPros News Staff

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