About 1 million small businesses will soon be able to make tax deposits every quarter, instead of monthly, under rules announced by the Internal Revenue Service.
"The new standard will reduce the paperwork and red tape that small businesses face," said IRS Commissioner Charles Rossotti.
The IRS now allows a business to deposit the income taxes they withhold from employees and their Social Security payroll taxes every three months if the total is less than $1,000 per quarter. Above that level, businesses will have to pay the taxes every month.
Under the new rules, beginning Jan. 1, the threshold for quarterly payments will rise to $2,500. That change affects roughly 1 million businesses, whose $6.6 billion in tax deposits make up about 13% of the total.
The change is expected to reduce by 70% the number of IRS notices small businesses receive, partly because there will be fewer chances for mistakes. Rossotti said quarterly payments also will improve cash flow for many small businesses.
The threshold rose from $500 to $1,000 in 1998, but many business groups argued that was still much too low.
"We were responding to the concerns from small-business owners and their representatives about the burden of the monthly deposit rules," said Joseph Kehoe, commissioner of the IRS Small Business/ Self-Employed Division.
Senate Small Business Committee Chairman Christopher S. Bond (R-Mo.) said the new rules "will have far-reaching effects" on easing the tax compliance burden.
"Any time we can eliminate the need for a few more IRS forms means we can free up more time for small-business owners to do what they do best--run successful businesses," Bond said.
Once the new rules take effect, businesses with tax deposits under the $2,500 level per quarter can file them using IRS Form 941. Those with tax amounts above $2,500 must deposit the money with an authorized financial institution.
For more information, go to the IRS Web site at http://www.irs.gov.