The Federal Reserve is the fiscal agent for the U.S. Treasury, and several Reserve banks play key roles in ensuring that the Treasury's collection and payment systems are as efficient and economical as possible. The Treasury disburses $1.7 trillion annually for Social Security and veterans' benefits, income tax refunds and other federal payments; it also collects more than $2.2 trillion in federal revenues and $2.8 billion in delinquent debts owed to the government. With a daily cash flow of nearly $50 billion, Treasury uses one of its bureaus, Financial Management Service, as its money manager.
In 1996, Congress passed a law requiring most federal agencies to make their payments by electronic funds transfer (EFT). For fiscal year 2003, 73.7 percent of the government's payment transactions were issued by EFT. Here are some of the programs the Fed has implemented to help improve the Treasury's payment and collection efforts.
Pay.gov is a web-based system operated by the Federal Reserve Bank of Cleveland that provides electronic methods for collecting federal agency payments. Pay.gov enables:
Federal agencies can use one or all of these services, and Pay.gov processed approximately 450,000 transactions totaling approximately $2 billion during fiscal year 2003.
The Cleveland Fed implemented another program, Paper Check Conversion (PCC), which is currently used for making purchases at military department stores and National Park Service gift shops. Countertop terminals scan a check and generate an ACH debit. The check is then cancelled and returned to the customer. About 747,000 items totaling approximately $391 million were processed electronically through PCC during fiscal year 2003. And in 2004, the Cleveland Fed will begin converting checks sent to Treasury lockboxes to ACH payments.
With U.S. military personnel located throughout the world at bases, ships and other locations, it can be very costly for the government to pay and cash their checks. On behalf of the Treasury, the Boston Fed implemented a stored value card program as an alternative to processing over $2 billion in cash payments outside the United States.
For example, soldiers in all Army, Air Force and Marine Corps basic training receive their pay on stored value cards. Merchant locations on government sites and ships—including stores, vending machines and other service providers—are equipped with stored-value collection terminals so that cardholders can make purchases with their cards.
Businesses and individuals have been reporting and paying their taxes electronically using the Electronic Federal Tax Payment System (EFTPS) since 1996. An Internet version was released in 2001. EFTPS OnLine is secure and available 24 hours a day. It offers users a printable acknowledgement for documenting transactions, the ability to schedule advance payments and access to payment history. More than 4.5 million taxpayers have enrolled in EFTPS, and the IRS received over 17 million tax payments for $1.36 trillion through this service in fiscal 2003.
A new initiative implemented this January, EFTPS Express Enrollment for New Businesses, will affect all businesses receiving a new Employer Identification Number (EIN). Business taxpayers with a federal tax obligation will be automatically pre-enrolled in EFTPS to make all of their federal tax deposits—instead of receiving paper tax coupons.
Additionally, the Federal Reserve Bank of St. Louis is coordinating a research effort to discover ways to increase the usage of EFTPS. Researchers will survey tax professionals, small businesses and individuals to measure their:
This research will be completed by April, then delivered to the Treasury for analysis.