Home/ Tax Filing/ Electronic Tax Payments (941/940)

Electronic Tax Payments (941/940)

Overview

ProPay supports electronic filing of federal employment tax returns Forms 941 (quarterly) and 940 (annual unemployment) through the IRS e-file system. This eliminates paper filing, speeds up processing, and provides electronic confirmation of receipt.

Note: As of 4th Quarter 2015, the IRS discontinued the legacy e-filing programs and only accepts 940/941 returns transmitted under the new MeF (Modernized e-File) filing guidelines.

What Is a 941/940 E-file?

An e-file is an XML (Extensible Markup Language) file that contains all the information normally included on paper Forms 941 or 940. The e-file system is explained in full detail in IRS Publication 3823.

Key Benefits

  • Faster processing - Electronic returns are processed more quickly than paper
  • Electronic confirmation - Receive immediate acknowledgement of receipt
  • Fewer errors - Built-in validation catches mistakes before submission
  • Cost savings - Eliminates printing and mailing costs
  • Convenience - File for multiple clients in one session
  • Record keeping - ProPay retains electronic copies of filed returns

Before You Begin

IRS Registration Requirements

Before you can e-file 941/940 returns, you must register with the IRS and receive approval.

Important: Get approved FIRST before submitting production files.

See the topic "941/940 E-File IRS Registration" for complete registration guidelines.

Required IRS Credentials

After IRS approval, you will receive:

  • ETIN (Electronic Transmitter Identification Number) - 5-digit number for transmitting directly to IRS
  • EFIN (Electronic Filer Identification Number) - 6-digit number identifying you by IRS district
  • PIN (Personal Identification Number) - 5 or 10-digit unique confidential number for authorized agents
  • PTIN (Preparer Tax Identification Number) - Starts with "P" followed by 8 digits, or preparer's SSN

Key Terms and Definitions

Reporting Agent

A Reporting Agent is an accounting service, franchiser, bank, or other person authorized to prepare and electronically file Forms 940 and 941 for a taxpayer under Revenue Procedure 2001-9.

Important: Reporting agents sign all electronic returns they file with a single PIN signature.

Third Party Designee

A Third Party Designee is someone authorized to discuss a specific tax return with the IRS.

  • DPIN (Third Party Designee Personal Identification Number) - Self-assigned 5-character ID number used by third party designees
  • Also printed on paper Form 941 for 3rd party designees

Signatory vs. Designee

Review the "Signatory and Designee" help topic in ProPay for detailed explanation of these terms and when to use each.

Setting Up ProPay for E-filing

Step 1: Enter Preparer Information

  1. In ProPay, click Client Functions > Setup > System Setup > Electronic
  2. Enter all required IRS credentials in the 941 E-file Parameters section:
    • ETIN (Electronic Transmitter ID)
    • EFIN (Electronic Filer ID)
    • PIN (Personal Identification Number)
    • PTIN (Preparer Tax ID Number)
    1. Save the settings

    Step 2: Enter Client Information

    For each client:

    1. Click Client Functions > Edit/Change Client > Tax Filing and Other Info
    2. If your client has signed Form 8655 (authorizing electronic filing):
      • Check the appropriate box indicating you have received approval
      1. Enter the 941 Business Name Control assigned by the IRS for this client
      2. Save the changes

      Form 8655: This is the IRS authorization form allowing you to file electronically on behalf of a client. Keep signed copies on file.

      Creating E-file Returns

      Generating 941/940 E-files

      1. Go to Client Functions > Electronic Functions > Magnetic Media > Federal Quarterly 941/940/944 Filing
      2. Select the clients to include in the submission
      3. Choose the tax period (quarter for 941, year for 940)
      4. ProPay creates an XML file ready for transmission to the IRS

      Test Files vs. Production Files

      Submit Test Files First

      Before submitting regular (PRODUCTION) files, you must send one or more TEST files to get IRS approval.

      Creating a test file:

      • Take an existing client and change the first 2 digits of the Federal ID to start with "00"
      • OR create a separate test company just for testing

      Important: Test files use a Federal ID starting with "00" to distinguish them from real production filings.

      Production Files

      Once approved by IRS after successful test filing:

      • Use actual Federal IDs for all clients
      • Mark files as "Production" when creating
      • IRS will process these as official tax returns

      Transmitting E-files to the IRS

      Before Uploading

      1. Print the Internal Report - Hard copy for your records
      2. View Mag Media File - Review at least one client's wages and taxes, spot-check some numbers against a printed copy of the form
      3. Verify accuracy - Compare totals with quarterly wage reports

      Upload Process

      1. In ProPay, after creating the e-file, click Upload File
      2. Log in to the IRS e-file website
      3. Follow IRS prompts to upload the file
      4. Wait for processing confirmation
      5. Download the IRS acknowledgement file

      IRS E-file Website

      The IRS provides a secure portal for uploading employment tax e-files. Access and instructions are provided after you complete IRS e-file registration.

      Reading IRS Acknowledgement Files

      After uploading your file to IRS:

      1. Click the IRS link to Receive/Download the IRS Acknowledgment file(s)
      2. Save the Acknowledgment file(s) in your \PAYSOFT\PROPAY26 folder
      3. The file is a .ZIP file that ProPay can open and read

      Viewing Acknowledgements in ProPay

      1. Go to Client Functions > Electronic Functions > Magnetic Media > Read IRS 94x Acknowledgement File
      2. Browse to the acknowledgement .ZIP file you downloaded
      3. ProPay displays the IRS response for each return filed:
        • Accepted - Return successfully filed
        • Rejected - Return has errors that must be corrected

        If Returns Are Rejected

        1. Review the rejection reason in the acknowledgement file
        2. Make necessary corrections in ProPay
        3. Create a new e-file
        4. Resubmit to IRS
        5. Download and review new acknowledgement

        Official Filed Copies

        ProPay retains separate files as the "official" IRS filed copies:

        • These files serve as proof of filing
        • Can be accessed from ProPay menu options
        • Provide copies to clients as needed
        • Keep for required record retention period (at least 4 years)

        Multiple Client Filing

        Filing for Multiple Clients

        You can include multiple clients in a single e-file submission:

        1. Select all applicable clients when creating the e-file
        2. ProPay creates one file containing all selected returns
        3. Upload the single file to IRS
        4. IRS acknowledgement will show status for each client separately

        Benefits of Batch Filing

        • More efficient for high-volume filers
        • Single upload process
        • One acknowledgement file to review
        • Reduced administrative time

        Forms Supported

        Form 941 - Quarterly

        • Filed quarterly (Q1, Q2, Q3, Q4)
        • Reports wages paid and taxes withheld
        • Must be filed even if no wages paid

        Form 940 - Annual

        • Filed annually
        • Federal unemployment tax (FUTA)
        • Due by January 31st for prior year

        Form 944 - Annual (Small Employers)

        • Annual form for small employers
        • Alternative to quarterly 941 filing
        • Must have IRS approval to use Form 944

        Important Filing Deadlines

        Form 941 Deadlines

        • Q1 (Jan-Mar): Due April 30
        • Q2 (Apr-Jun): Due July 31
        • Q3 (Jul-Sep): Due October 31
        • Q4 (Oct-Dec): Due January 31

        Form 940 Deadline

        • Annual filing: Due January 31 for prior calendar year

        Note: If the due date falls on a weekend or holiday, the deadline is the next business day.

        Tax Payments vs. Tax Returns

        E-filing Forms 941/940 Does Not Replace Tax Payments

        Important distinction:

        • Forms 941/940 e-file: Tax return showing amounts owed
        • EFTPS payments: Actual tax payments deposited

        You must do both:

        1. Make timely tax deposits through EFTPS or other approved method
        2. File Forms 941/940 to report the wages and taxes

        Decision Tree: Choosing Your Electronic Tax Payment Method

        Use this decision tree to determine the best electronic payment method for your situation.

        Step 1: Is this a federal or state tax payment?

        • State tax payment - Check your state's electronic payment requirements
        • Some states require electronic payments above certain thresholds
        • Use state-specific EFT or online payment portals
        • Contact your state tax agency for approved methods
        • Federal tax payment - Continue to Step 2.

        Step 2: Are you a payroll service provider filing for multiple clients?

        • No (single employer) - Continue to Step 3.
        • Yes (payroll service provider) - Continue to Step 4.

        Step 3: Single Employer Payment Options

        • EFTPS Direct - Recommended for most employers
        • Register at eftps.gov
        • Schedule payments online or by phone
        • Free service from U.S. Treasury
        • Best for: Employers making their own deposits
        • Same-Day Wire - For urgent/late payments only
        • Higher fees apply
        • Contact your bank for wire instructions
        • Best for: Emergency deposits to avoid penalties

        Step 4: Payroll Service Provider Options

        • EFTPS Batch Provider - Recommended for service bureaus
        • Submit multiple client payments in one batch file
        • ProPay generates batch files automatically
        • Register as EFTPS Batch Provider with IRS
        • Best for: High-volume filers with many clients
        • ACH Credit - Alternative batch method
        • Initiate payments through your bank
        • Requires bank setup and IRS enrollment
        • Best for: Providers with existing ACH infrastructure

        Step 5: How frequently do you make deposits?

        • Monthly depositor - Deposits due by 15th of following month
        • Can schedule recurring EFTPS payments
        • Lower administrative burden
        • Semi-weekly depositor - Deposits due within 3 business days
        • Automate with batch provider for efficiency
        • Set up calendar reminders for deposit deadlines
        • Consider same-day wire for unexpected shortfalls

        Electronic Tax Payment Options

        See these related topics for electronic payment methods:

        • EFTPS Batch Provider Payments - Federal electronic tax payment system
        • Tax Payments - Overview of payment methods and timing
        • Tax Impounds - Managing client tax deposits

        Troubleshooting

        Cannot Create E-file

        Problem: ProPay won't generate the e-file

        Solutions:

        • Verify IRS credentials are entered in System Setup > Electronic
        • Check that client has Form 8655 authorization marked
        • Ensure 941 Business Name Control is entered for client
        • Verify tax period is complete and finalized

        Upload to IRS Fails

        Problem: Cannot upload file to IRS website

        Solutions:

        • Check your internet connection
        • Verify IRS e-file system is operational
        • Ensure you're using correct IRS login credentials
        • Try different browser
        • Upload during off-peak hours

        All Returns Rejected

        Problem: IRS rejects entire submission

        Solutions:

        • Verify ETIN, EFIN, and PIN are correct
        • Check that you're approved for production filing (not just test)
        • Review IRS rejection codes carefully
        • Contact IRS e-file help desk

        Individual Client Return Rejected

        Problem: One client's return in batch is rejected

        Solutions:

        • Review specific rejection reason for that client
        • Common issues:
        • Invalid EIN
        • Business Name Control mismatch
        • Math errors in wage or tax calculations
        • Missing required information
        • Correct the issue and refile just that client

        Cannot Read Acknowledgement File

        Problem: ProPay won't open IRS acknowledgement

        Solutions:

        • Ensure file is saved as .ZIP format
        • Don't unzip the file before opening in ProPay
        • Save to accessible folder (not temporary downloads)
        • Try downloading acknowledgement file again from IRS

        Best Practices

        Before Filing

        • Complete all payroll for the period
        • Reconcile wage totals with prior filings
        • Verify tax deposits match reported liability
        • Review for mathematical accuracy
        • Check all client authorization forms are current

        When Filing

        • Submit test files first (new filers or annual approval renewal)
        • File early - don't wait until deadline
        • Keep copies of all uploaded files
        • Download acknowledgements promptly
        • Print confirmations for client files

        After Filing

        • Review all acknowledgements for acceptance
        • Refile any rejected returns immediately
        • Provide clients with filed return copies
        • Keep electronic and paper records for at least 4 years
        • Note filing dates on calendar for next period

        Security Considerations

        Protect IRS Credentials

        • Store ETIN, EFIN, and PIN securely
        • Never share credentials
        • Change passwords periodically
        • Limit staff access to e-file system

        Safeguard Client Data

        • E-files contain sensitive wage and tax information
        • Use secure transmission methods
        • Encrypt files if sending electronically
        • Delete temporary files after successful filing

        Additional Resources

        Related Topics

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