Payroll Taxes Electronic Filing & Payment Arun Varshney Jeff Zias Intuit Inc. Aug 9, 2005 Why we are here today Goals: Share our experience & Learn from you all. Small Biz customers expecting (demanding) electronic filing and payment of payroll taxes. How lessons learned from income tax e-filing can be applied to increase payroll tax e-filing. Highlight key barriers to agencies e-filing goals. Share proposal to meet the needs of all users [Small biz taxpayers, Tax professionals, Payroll Service Providers, Software developers and Transmitters]. Most users have common requirements: Yet there may be some unique areas within user s requirements. How to increase e-filing adoption while keeping cost low. This session focuses on the software developer and transmitter models from Intuit perspective, and augments the NPRC E-Filing presentation on the payroll service provider perspective. 2 I n t u i t - Copyright 2005 1
Today s Agenda Situational Assessment Case Studies Barriers for e-filing / e-payment Moving Towards Vision - Technology Proposal and Motivation Q&A 3 I n t u i t - Copyright 2005 Situational Assessment Case Study #1 Income Tax E-Filing 4 I n t u i t - Copyright 2005 2
SW Developer/Transmitter E-Filing - Do-It- Yourself Model #2 Individual taxpayer using TurboTax 1. Income Tax preparation 2. Novice, Expert mode guidance 3. Self-select PIN, No enrollment 4. Leverage/Import data Income Tax 5. Manage Acknowledgment Internet Batch E-File Server developed by Transmitter Many different protocols Joint Fed, State 1. TurboTax enables taxpayers to manage their income tax returns in one place 2. Batch transmitters enables multiple returns, high volume E-Filing submission 5 I n t u i t - Copyright 2005 State Banks TurboTax E-Filing Volume Growth 40 35 30 25 20 15 10 5 0 Returns (in millions) TY96 TY97 TY98 TY99 TY00 TY01 TY02 TY03 TY04 6 I n t u i t - Copyright 2005 3
TurboTax E-Filing Taxpayers Wins Personal & Professional Income Taxpayers Wins Paperless. No prior enrollment work required, electronic signatures accepted (AGI, SSN, Self-Select PIN). Saves time. Tax filing is faster than ever, higher accuracy. Easy to use, Integrated experience information is managed in one place. 7 I n t u i t - Copyright 2005 TurboTax E-Filing Agency Wins Federal & State agencies win High E-Filing adoption..help achieve agency e-filing goals. Highly accurate and paperless filings...brings efficiency & cost savings. Joint Fed/State minimizes number of connections & support large volume batch providers results in happy industry e-file providers. 8 I n t u i t - Copyright 2005 4
TurboTax E-Filing Industry Wins Intuit & Industry wins Identified and solved taxpayers problems resulted in happy customers (higher retention and new sales). Industry collaboration resulted in many choices for the taxpayers to e-file. Agencies developed systems for batch submission resulted in e-file at a lower price. 9 I n t u i t - Copyright 2005 Case Study #2 Payroll Tax E-Filing 10 I n t u i t - Copyright 2005 5
QuickBooks Payroll Tax Filing & Payment Choices Small Business Pays Taxes and Files Outsource Pays Taxes and Files Small Business Pays Employees Do-It-Yourself Assisted Outsource Paying Employees NA Outsourced 11 I n t u i t - Copyright 2005 SW Developer/Transmitter E-Filing & E- Payment - Do-It-Yourself Model #2 Small Biz Taxpayer Using Accounting/ Payroll s/w 1. Payroll Taxes preparation 2. Enrollments paperwork 3. Integrated Workflow 4. Leverage payroll data Enrollment PIN Payroll Taxes Batch E-File/Pay Server developed by Transmitter 1. Enrollment Processing 2. Batch Processing 3. Agency data conversion 4. Agency Connectivity 5. Acknowledgem ent processing Format XML, EDI, MMREF, Other proprietary Connectivity FTP, Dial up, HTTPS, Website upload WH, UI, Wage Reporting agencies (Fed & State) 1. Enrollment requirements and lack of automated batch submission are barriers. 2. Very few agencies support this model. 12 I n t u i t - Copyright 2005 6
Payroll Service Provider E-Filing & E-Payment Model #3 Small Biz Taxpayer 1. Outsource Payroll Taxes preparation and Filing/Payment (can afford the cost) 2. Enrollment paper work Enrollment POA Payroll Tax Payroll Service Provider 1. Payroll Taxes preparation 2. Enrollment paper work 3. Timely filing and payment 4. Notice Handling, Liability Paper, Manual 1. Lack of un-attended batch submission are barriers. Enrollment POA CD, Fax, Mail Paper Forms, Check Mail Perceived Electronic Magnetic Media Forms Mail Manual Website upload Electronic E-Format XML, EDI, MMREF, Other proprietary E-Connectivity FTP, Dial up, HTTPS WH, UI, Wage Reporting agencies (Fed & State) 2. Perceived Electronic results in in-efficiency & higher cost. 13 I n t u i t - Copyright 2005 QuickBooks E-Filing & E-Payment Volume Number of Do-It-Yourself Payroll Customers (000 s) 900 800 700 600 500 400 300 200 100 0 QuickBooks DIY Payroll 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 14 I n t u i t - Copyright 2005 7
Payroll Tax E-Filing & E-Payment Taxpayers Challenges Small Biz Payroll Taxpayers challenge Paper and manual processes are required which slows things down. I can t keep track of all the websites, I thought I filed all my taxes but didn t know I need to go to other website too. My state mandated e-filing, I can e-file on the website but can t use my business software to file electronically. I need all my payroll taxes in one place, why can t I do that? 15 I n t u i t - Copyright 2005 Payroll Tax E-Filing & E-Payment Agency Challenges Federal & State challenge My agency spent money on website, why can t I achieve my e- filing goals? My agency has limited funding, How do I meet the needs of all users (taxpayers, payroll service providers, tax professionals, software developers and transmitters etc.)? How do I evolve my legacy systems infrastructure? 16 I n t u i t - Copyright 2005 8
Payroll Tax E-Filing & E-Payment Intuit Challenges Industry, Intuit challenge Can t offer low cost solution to the taxpayers; manual processes for enrollments and perceived e-filing can t scale to support large customer base Agency websites are designed for human interaction, lack automated application-to-application batch submission Why can t payroll agencies apply leanings and re-use systems developed for income tax e-filing? Industry can drive large e-filing volume, why don t we all work together towards this goal? 17 I n t u i t - Copyright 2005 Summary 18 I n t u i t - Copyright 2005 9
Summary Key Take Away & Goals Small Biz taxpayers wants to e-file/pay if process is easy. All stakeholders want to bring efficiency and reduce cost. Meeting taxpayers needs require support from all stakeholders. Enrollments & Paper processes adds up cost for the taxpayers. Agency websites are designed for human interaction, lack automated application-to-application batch Interaction. Lessons can be applied from income tax e-filing to build scalable system infrastructure. Agency investment need to support all stakeholders. Therefore re-use of technology & system infrastructure is key. 19 I n t u i t - Copyright 2005 Moving Towards the Vision 20 I n t u i t - Copyright 2005 10
Moving Towards Vision All Stakeholders From From Paper and Manual Processes results in high operating cost To To Paperless, Automation keeps minimal operating cost Enrollments & Wet signatures required Shared secret for electronic signatures, Easy authentication as on-line banking Legacy (dial-up, magnetic media etc.) for data transmission Web Services App-to-App (A2A) interface for un-attended batch data exchange Many data representation formats (EDI, fix length etc.) XML as industry standard for data representation Late filings & errors require resources Timely & accurate tax filings, allows agencies to allocate resources on core tasks 21 I n t u i t - Copyright 2005 #1. design for industry standard protocols help reduce cost Data Transmission Unattended (App-to-App) transmission is key for automating process and lowering cost associated with electronic filing & payment. Support batch submissions & provide real-time validation of the transmission to ensure authorization, completeness and correctness of the transmission. How to? A2A transmission requires an API, including a well-defined data format and a secure transmission protocol. Web Services uses a Web Service Definition Language (WSDL) document to specify the API between the communicating applications. In addition to Web Services, other A2A transport protocols include SCP, secure FTP and FTP over private network. Note: Transmissions applies to both files and Web Services messages. 22 I n t u i t - Copyright 2005 11
#1. design for industry standard protocols help reduce cost Cont d Data Format Legacy formats are barrier (as they require additional customization (therefore cost) and may be acceptable in a contingent scenario only but commonality is key. How to? States should accept a common format for payroll data. FSET XML is highly desirable. XML Documents over HTTPS (Web services) are becoming the premier industry standard for A2A, also adopted by the new IRS MeF system. Privacy and Security Privacy and confidentiality concerns are paramount in A2A. Security mechanism will continue to be evaluated and improved. Many systems rely on secure sockets (HTTPS) for encryption and server authentication. How to? Investigate industry security standards for Web services such as WS- Security allow for well documented, interoperable, vendor and toolsupported security implementations. The IRS MeF system has chosen SAML as a security mechanism. 23 I n t u i t - Copyright 2005 #2. Design reusable infrastructure help speed up e-file adoption Reusable infrastructure Reuse is key while modernizing technology infrastructure. Legacy systems needs to refresh and consolidated overtime. How to? Design for Interactive Websites & Un-attended Batch transmission. Identify commonality and develop reuse infrastructure. Design for Joint Fed/State gateway integration for long-term reuse. Identify common e-filing needs of various type types (income tax, payroll tax, sales tax, use tax etc.) and plan for reusable components. Leverage freeware low-cost tools for rapid prototype (XML tools, Web server, Security tools etc.) 24 I n t u i t - Copyright 2005 12
#3. Eliminate enrollments help Increase e- filing adoption Eliminate Complex Enrollments for E-Filings Design systems to accept electronic returns without requiring separate enrollment transactions. If signature required, Consider developing unified shared secret (similar to income tax e-filing) as an alternate to enrollments. How to? Consider automatically enrolling each taxpayer for electronic filing. Implement a shared secret / credentials model as a means for electronic signature. An example of shared secret could look like; combination of total liability payment from last year, year in which small biz registered, self-select PIN. These credentials could be used as electronic signature for submitting electronic returns. 25 I n t u i t - Copyright 2005 #3. Eliminate enrollments help Increase e- filing adoption Eliminate or Automate Enrollments for E-Payments Design systems to accept electronic payments without requiring separate enrollment transactions. If enrollment is really required, Consider unified enrollment for payments across federal and state agencies. How to? Consider using the bank account information provided in the electronic payment transaction itself by real-time validation of taxpayer and bank account. Alternatively, develop single electronic enrollment for all payments (Joint Fed/State EFTPS) so taxpayers should register once and use that PIN for any federal or state payment. Note: This will help all stakeholders as many clients begin using a payroll service or a transmitter on short notice, and occasionally shortly before a payment (or return) is due. 26 I n t u i t - Copyright 2005 13
Win-Win-Win Small Biz taxpayers win No paper work required. Easy to use and integrated with their business software Takes less time since all their data is in one place Accuracy, Less chance of error and re-work therefore have confidence to pay and file taxes right. Federal & State agencies win Increased adoption of e-filing & e-payment with some of the hardest to reach small businesses. More accurate & timely filings, payments. No paper work, save $$. Scalable infrastructure to quickly enable future e-filing. Industry win Can offer low cost e-filing solution to the taxpayers. Increased collaboration with agencies in meeting e-filing goals. Providing more value to the customers results in happier customers. 27 I n t u i t - Copyright 2005 Q&A Contact Info: Jeff Zias, Jeff_Zias@intuit.com 650.944.3251 Arun Varshney, Arun_Varshney@intuit.com 650.944.5110 28 I n t u i t - Copyright 2005 14
Appendix: Agency Website E-Filing - Do-It- Yourself Model #1 Individual taxpayer using Agency website Joint Fed/State Website Internet Income Tax 1. Income tax calculations 2. Help/Guidance 3. Manage Acknowledgment 4. Other Agency Website Websites provides one return at a time direct channel for agencies 29 I n t u i t - Copyright 2005 Appendix: Agency Website E-Filing & E- Payment - Do-It-Yourself Model #1 Small Biz taxpayer using Agency website Payroll Taxes Internet Filing Websites state 1..N Payment Websites state 1..N 1. Income tax calculations 2. Help/Guidance 3. Manage Acknowledgme nt 4. Other Wage Reporting Website Payment Website - federal 1. Each agency developed websites for one return at a time direct channel 2. Most agencies support this model. 30 I n t u i t - Copyright 2005 15
Appendix : What QB Payroll DIY Customers Tell Us D. Loebner, Media One Services All my payroll tax data is right there in QuickBooks; don t want to type-in again on multiple web sites.less chance of error R. Knapp, Lane Consulting N. Jones, Power Technology Having it all in QuickBooks is less chance of forgetting it payment process being outside of QuickBooks is just easier to forget to do it. I want to see record of all my tax filing and payment in one place; it s just one step vs. get out of QB, get on the agency site and 3 4 more steps 31 I n t u i t - Copyright 2005 16