EFTPS - Financial Management Service - Department of the Treasury

EFTPSElectronic Federal Tax Payment SystemThe crucial role of awareness and familiarity in increasing usageResearch sponsored by the U.S. Treasury’s Financial Management Service and conducted by the Federal Reserve Bank of St. Louis

TABLE OF CONTENTSIntroduction ......................................................................1Qualitative Study ...............................................................3Quantitative Study .............................................................5Summary and Conclusions ................................................9OMB CONTROL NUMBER: 1545-1349

INTRODUCTIONBACKGROUNDThe Electronic Federal Tax Payment System(EFTPS) provides tax professionals, small businessesand individuals a free electronic way to pay federaltaxes. The service is jointly offered by two bureausof the U.S. Department of the Treasury—the InternalRevenue Service (IRS) and the Financial ManagementService (FMS).increase usage by tax professionals, small businessesand individuals. It also sought to understand whatmessages might persuade these groups to use EFTPS.The Federal Reserve Bank of St. Louis, acting as fiscalagent of the U.S. Department of the Treasury, contractedwith Wirthlin Worldwide (now part of HarrisInteractive), a research-based consulting firm, to conductqualitative and quantitative research on increasingthe usage of EFTPS.EFTPS offers taxpayers the convenience and flexibilityto make federal tax payments over the Internet or bytelephone, rather than the traditional process of usingpaper coupons. Paying taxes electronically benefits taxpayers because it reduces the probability of errors andhelps them avoid penalties.PROJECT SCOPE AND RESEARCH OBJECTIVESThe EFTPS research study was conducted in twophases: qualitative research, which concluded in late2003, and quantitative research,which was completed in 2004.Since EFTPS was introduced in 1996, more than5.5 million taxpayers have enrolled in the system and488 million payments totaling more than $11.6 trillionhave been collected. It is clear, however, that manymore individuals and small- to medium-sized businessescould also benefit from using the system. The IRS andFMS are committed to increasing EFTPS usage.To better understand the issues surrounding federaltax payment preferences, the IRS and FMS in2003 initiated a market research study of thebarriers to enrolling in and using EFTPS.This study was designed to determine howwell EFTPS was known and how best to1

The specific objectives of the research were to:• understand the factors that currently facilitateor are barriers to EFTPS usage for individuals,small businesses and tax professionals;• assess specific factors that may be leveraged toenhance EFTPS usage;• provide a foundation for a communicationsframework for EFTPS initiatives; and• assess the role of tax professionals in influencingpeople’s use of EFTPS.Using a unique approach, the research sought toidentify the personal values that relate to EFTPS usageand how those values relate to payment preferencesamong the target audiences. This approach, calledvalues-based research, establishes linkages from therational process of decision-making to the emotionalconsequences associated with those choices. Thevalues and other important elements are first identifiedin the qualitative study and then measured in thequantitative study.EFTPS FACTSEFTPS FACTSTaxpayers who pay by check are about 30 times moreTaxpayers likely to have who tax pay penalties by check assessed are about against 30 times them more thanlikely those to who have use tax electronic penalties forms assessed of payment. against them.EFTPS uses the most advanced security measures availableto protect information.The EFTPS system allows users to schedule paymentsin advance, any time of day, any day of the week, fromany location.EFTPS issues an Acknowledgement Receipt NumberEFTPS confi rming issues that an payment Acknowledgement instructions Receipt have been Number received.confirming In addition, an that EFTPS-OnLine payment instructions user can have access been and received. printIn up addition, to 16 months an EFTPS-OnLine of payment history. user can A taxpayer access and who printup makes to 16 a payment months of via payment phone using history. the A Voice taxpayer Response whomakes System a (VRS) payment will via receive phone an using Acknowledgement the Voice Response ReceiptSystem Number (VRS) and can will also receive check an payment Acknowledgement history.Receipt Number and can also check payment history.2

QUALITATIVE STUDYMETHODOLOGYThe qualitative research phase utilized AdvancedStrategy Labs (ASL), a proprietary research approachfrom Wirthlin Worldwide. The ASL methodology collectedindividual data in a group setting using separatecomputers and group discussion. This approach allowseach participant to respond to questions anonymouslyvia a computer—thereby preserving the integrityand confidentiality of responses—while also allowingfor group interaction and brainstorming. The interviewprocess uses a series of brainstorming questionsand laddering techniques designed to string togetherresponses that help map a respondent’s thought process.The data that result show the linkages between therational and emotional elements of decision-making.Individuals: 40 participants• Pay estimated taxes more frequently than once a year• Mix of occupations (service, manufacturing, wholesale/retailtrade, other)• Mix of demographics, including race and ethnicity• Target individuals over age of 40• File as individuals, jointly with spouse or as a soleproprietor, S corporation or partnershipA total of six ASL sessions were conducted in twocities—Houston and New York. Most sessions had 20participants and lasted approximately three hours.PARTICIPANT CRITERIATax professionals: 40 participants• Owner of small tax firm or a senior tax accountant/account executive in a medium-sized firm• Mix of firm sizes (excluding the six largestaccounting/tax preparation firms)• Client base of individuals and small businessesSmall businesses: 56 participants• Annual tax liability of $2,500 to $200,000• Decision-maker on how taxes are paid for the business• Mix of industries (service, manufacturing, wholesale/retailtrade, other)• Mix of companies, by size of their revenue andnumber of employees• Mix included minority- and woman-ownedbusinessesKEY FINDINGSLack of awareness and familiarity with EFTPSis a significant barrier. Most individual and smallbusiness respondents were either unaware of EFTPSor were confused about the service and its functionality.Their concerns resulted from a lack of knowledge3

and concern about the security of personal information.Tax professionals were more aware of EFTPS, butsome lacked understanding of how to use the system.They expressed concerns about the enrollment processand their clients’ ability to pay taxes online.Tax professionals are important catalysts toincreasing EFTPS usage. Nearly all of the tax professionalsparticipating in the ASLs indicated that theymake tax payment recommendations to their clients,and most individuals and small businesspersons indicatedthat they use tax professionals. Tax professionalsconsider the relationships with their clients to bevery important. Those who believe EFTPS providesvaluable benefits to their clients are inclined to recommendthe service.The impact of float on cash flow is an importantconsideration of those representing smallbusinesses. Many realize the float advantage towriting a check, and this period of float is part of theircash flow management. Small-business respondentswere also concerned about payment verification,which they felt was provided by a canceled check.Individuals are primarily concerned about verificationof payment and security of personalinformation, and small businesses share this concern.Verification of payment includes confirmationthat the payment has been made and was debited fromthe bank account. In addition, some kind of proof ofpayment was considered important in case of a disputewith the IRS. To date, the canceled check has satisfiedthese concerns and provided a sense of control overthe tax payment process. Some form of proxy for thecheck, such as a printable receipt, was likely to alleviatethis concern. Individuals are also concerned about thesecurity of their personal communication and onlineinformation, as well as who at the IRS has access totheir information.4

QUANTITATIVE STUDYMETHODOLOGYThe quantitative phase of the EFTPS research studywas a nationwide telephone survey of tax professionals,individuals and those representing small businesses.The surveys were conducted in early 2004 with 1,500randomly selected people from key audience groups.The average interview length was 20 minutes.PARTICIPANT CRITERIATax professionals: 500 participants• File at least 25 returns per year• CPAs, accountants, tax accountants, tax preparers• Mix of firm sizes (excluding the six largestaccounting/tax preparation firms)• Client base of individuals and small businessesSmall businesses: 600 participants• Annual tax liability of $2,500 to $200,000• Decision-maker on how taxes are paid forthe business• File taxes under an Employer IdentificationNumber• Mix of industries• Mix included minority- and women-ownedbusinesses• 25 percent were already enrolled in EFTPSIndividuals: 400 participants• Must make at least two estimated tax paymentsper year• Primary or joint decision-maker on how taxes arepaid for the household• Includes individual taxpayers and those who file asa sole proprietor, S corporation or partnership• Mix of ages, occupations and demographicsThe error due to sampling at the 95 percent confidencelevel is +/- 4.9 percentage points for the individualsgroup, +/- 4.4 percentage points for the taxprofessional group and +/- 4.0 percentage points forthe small business group.RESEARCH OBJECTIVESBuilding on the results of the ASL sessions, this studywas designed to:• quantify the levels of awareness and familiarity;• measure reactions to proposed initiatives to increaseEFTPS usage;• measure the prevalence of barriers identified;• more fully understand the role of taxprofessionals and other influencers of the taxpayment method;• explore the role and perception of the IRS; and• assess the overall favorability of EFTPS across thetarget audience.KEY FINDINGSFamiliarity with, and Favorability toward, EFTPSUnprompted awareness is low among all groups.The survey revealed a need to build awareness and5

familiarity of EFTPS among all groups of the targetaudience. Only 30 percent of tax professionals, 10percent of small businesses and 5 percent of individualssurveyed mentioned EFTPS by name. When askedabout options for paying electronically, many othersmentioned more general electronic means of payment,such as credit cards, electronic filing of tax forms andthe Internet. Nearly half (46 percent) of the individualssurveyed reported no knowledge of any electronic means fortax payment.Tax professionals are the most familiar withEFTPS; however, familiarity is lacking amongsmall businesses and individuals. More thanhalf (51 percent) of tax professionals report that theyare somewhat familiar with EFTPS, and a smallerpercentage (29 percent) are very familiar. Amongsmall businesses, 43 percent are familiar with EFTPS.Among individuals, few (12 percent) have any familiarity,and nearly half (44 percent) have never heardof EFTPS.Overall, reactions to EFTPS are generallypositive for tax professionals and small businesses.Nearly half of tax professionals and smallbusinesses are highly favorable toward EFTPS;however, individuals are significantly more cautiousabout EFTPS. Familiarity with EFTPS is tiedto favorability. Among all audiences, those alreadyvery familiar with EFTPS are significantly more likelyto be highly favorable than those who are unfamiliar.The Role of Tax ProfessionalsTax professionals have a great deal of influencein the tax payment process. Tax professionals areprotective and concerned about their client relationshipsand are more likely to recommend electronicmethods of payment if their clients convey interest.Nearly all tax professionals make recommendationsto their clients and believe their clients accept them.Most clients agree with this assessment: More thanthree-quarters of small businesses and individuals saythey are very likely to accept their tax professionals’recommendations.The vast majority (92 percent of small businessesand 85 percent of individuals) use taxprofessionals. Among those who use tax professionals,the majority report that the decision on how taxpayments are made is a joint effort between themselvesand their tax professionals. Nearly one-third of taxprofessionals have made tax payments on behalf oftheir clients using EFTPS. 6

The Role of Tax Professionals in Making RecommendationsHow often do you make recommendationsabout how to pay federal taxes?How often do clients accept yourrecommendations?Very Often47 6228 Somewhat Often3220 Rarely44 Never0PercentPercentPercentages may not equal 100 percent because of rounding • Base: Tax Professionals (n=500), Tax Professionals Who Recommend (n=476)Perceptions of Check Paymentsvs. Electronic PaymentsThe quantitative research measured the importanceof certain attributes to respondents when makingdecisions about tax payments. The results very clearlyindicate that security of payment information, avoidinglate payment penalties, receiving verifi cation of paymentandhaving a fast and easy process are critically important.Tax professionals are more likely to associate theseimportant attributes with electronic payment. However,my clients are comfortable with the process is verystrongly linked with payment by check. The chartbelow shows that protecting the client relationshipsupersedes recommending electronic payment.Small businesses and individuals still attribute theimportant variable of security to checks. IndividualsImportance of Attributes When Making Decisions about Tax Payments(Mean importance using 1-10 scale, with 10 being most important)AttributeTaxProfessionalsn=500SmallBusinessesn=600Individualsn=400Payment and client/personal company info is secure 8.6 8.8 8.7Likelihood to Take Recommendation from TaxProfessionals Avoiding late payment on penalties How to Pay Federal Taxes8.5 8.6 7.8Receive proof of payment 8.4 8.0 7.7Individuals20Payment n=339process is fast and easy767.9 8.196%7.1Small Businessesn=549178198%7

are also more likely to equate verification of paymentwith checks rather than electronic payments.Perceptions of Transition to Electronic PaymentThe enrollment process does not appear to be abarrier among tax professionals or small businesses.Tax professionals and small businesses overwhelminglyreport that the EFTPS enrollment processis straightforward and easy—not difficult and confusing.Individuals, on the other hand, are likely to findthe enrollment process daunting—41 percent find theprocess difficult and confusing.Nearly every small business surveyed (98 percent)owns a computer and has access to theInternet. This reflects familiarity with computersand software applications among the target audience,which indicates that making the transition to EFTPSwould not be expensive or difficult for taxpayers.Concerns about float identified in the qualitative studywere not replicated in the quantitative study.How Respondents Attach Attributes to Form of PaymentAttributeTaxProfessionalsn=500SmallBusinessesn=600Individualsn=400Payment and client/personal company info is secure Electronic CheckCheckAvoiding late payment penalties Electronic Electronic NeitherReceive proof of payment Electronic Electronic CheckPayment process is fast and easy Electronic Electronic Neither8

SUMMARY ANDCONCLUSIONSClearly, EFTPS is early in the adoption curve for smallbusinesses and individuals. Building awareness andfamiliarity through educational efforts will be effectivein boosting the use of EFTPS. Specifically, increasingthe knowledge of, and comfort level with, the securityof both the EFTPS system and taxpayers’ personalinformation will likely overcome concerns stemmingfrom a lack of understanding.tremendous with an aggressive communicationsprogram. And the payoff is clear. As usage of thiselectronic payment method increases, the numberof paper payments processed will decrease, resultingin significant cost savings for the government. Taxprofessionals, small businesses and individuals willbenefit from greater accuracy, timeliness and efficiencyof tax payments.Also important to consider is the critical role of taxprofessionals. Tax professionals realize a sense ofaccomplishment when their clients view them as helpfuland perform their responsibilities well. Tax professionalsreport making recommendations on paymentissues to their clients, and the clients in turn reportthat they usually agree with the recommendations.Thus, encouraging tax professionals to educate theirclients on the benefits of electronic payment wouldlikely lead to greater use of EFTPS. At the same time,communicating directly with small businesses andindividuals will be important to gain trust and helpmotivate tax professionals to encourage their clients touse EFTPS.Acceptance of EFTPS could be facilitated if small businessesunderstand how the service will increase theirefficiency. Increased efficiency, as demonstrated in thevalues-based research, leads to a sense of control, securityand peace of mind concerning their businesses.Because familiarity is tied to favorability among allaudiences, the potential for growth in EFTPS usage is9