Treasury service wants agencies to switch to improved payroll tax app

The Treasury Department’s Financial Management Service has upgraded the system
that lets agencies pay their payroll taxes electronically, and it has streamlined the
process by making the application available via the Internet.

Now FMS must persuade agencies to use the new app, said Paul Gist, director of
FMS’ Financial Services Division.

Selling agencies on FEDTAX II is not as simple as it might sound, he said, because
agencies already can use FEDTAX, which lets them do much the same thing. FEDTAX, however,
requires more steps than its successor.

FEDTAX is a dial-up modem application that runs under MS-DOS, Gist said. To use the
system, agencies needed a standalone PC dedicated to FEDTAX.

Using the old application, the transfer of payroll data and the payment of payroll
taxes are separate transactions. But the upgraded FEDTAX II lets agencies complete the
process in a single transaction, Gist said.

For FEDTAX, users must first tap into the Government Online Accounting Link, which
calculates taxes owed and sends the data to FMS. From there, they then transfer to the
Online Payment and Collection System, which lets them authorize the transfer funds.

FEDTAX II lets agencies complete the same process without shifting from system to
system, Gist said.

The application also lets them file their payroll tax data with the IRS without
submitting any paper. Agencies receive Form 941, the Employer’s Quarterly Federal Tax
Return, which shows the payments they made throughout the quarter.

Instead of signing and mailing Form 941, FEDTAX II generates an electronic version for
transmission to the IRS. Using a personal identification number issued by the IRS,
agencies sign their forms online. There are 172 agencies and 450 PINs available, he said.

There is an incentive for FMS to make the process simpler for agencies: Payroll tax
payments are a big part of its work. FMS, which writes the checks and processes payments
for the government, handles $1.5 trillion in payments received by the federal government
each year. Agency tax payments make up $40 billion of those payments.

FMS used FLS Payroll Tax System software from Federal Liaison Services Inc. of Dallas
to revamp the FEDTAX app. CashTax, a subcontractor to Bank of America, which processes
electronic funds transfers for the project, helped Federal Liaison Services customize the

FMS hosts FEDTAX II on a Sun Microsystems Ultra Enterprise 2 Model 1300 server with a
300-MHz Ultrasparc processor and running SunSoft Solaris 2.5.

Agencies can run the app on a 486 PC under Microsoft Windows 3.1 or Windows 95 or on a
133-MHz Pentium under Windows Workstation NT 4.0. FEDTAX II requires 100M free on the
PC’s hard drive.

For agencies that choose not to use the Internet, there is a virtual private network
with a local dial-up link, Gist said. Some agencies are wary of sending information over
the Net, and some do not give employees Web access, he said.

A few agencies already have made the switch to FEDTAX II. They include some of the
government’s major payroll operations: the Agriculture Department’s National
Finance Center, the Defense Department’s Finance and Accounting Service, General
Services Administration and the Office of Personnel Management.

FMS rolled out the upgraded app in July. It developed and implemented FEDTAX II in just
six months, for which the agency received Treasury’s Alexander Hamilton Award for
Excellence in Treasury Management, Gist said.  


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