The U.S. Treasury is working aggressively to convert its checks to electronic payments, such as ACH. Not only does the Treasury save more than 50 cents on each payment converted from check to ACH, the recipient and the payer also benefit from the improved speed, convenience and safety of an electronic payment.
Currently, the Treasury's Financial Management Service (FMS)—the division that issues and collects federal government payments—has several initiatives under way that will influence how some financial institutions receive and submit federal government payments:
Electronic Tax Payments—Several years ago, the Treasury introduced the Electronic Federal Tax Payment System (EFTPS), a free, convenient service that allows businesses and individuals to pay all of their federal taxes via PC-software or a voice-response system. Last year, the Treasury also introduced EFTPS-OnLine, which allows businesses and individuals to enroll, schedule and make payments, print payment receipts, view payment history and cancel payments through the Internet.
Currently, the Treasury requires businesses with an annual federal tax liability of $200,000 or more to use EFTPS; however, businesses of all sizes and many individuals often choose EFTPS because of its superior convenience over paper-based alternatives. Many institutions are actively offering EFTPS to their business customers as a way to decrease the amount of paper-based federal tax coupons they process. This move has been very successful. During the Treasury's 2001 fiscal year, businesses and individuals made more than 61 million tax payments worth $1.5 trillion through EFTPS.
Pay.gov—Individuals and companies use Pay.gov as an e-commerce Internet portal to government agencies, with a primary focus on payment transactions to the government. From June 2001 through August 2002, more than $1.7 trillion was collected on 53,000 transactions through Pay.gov.
Pay.gov offers several payment alternatives, such as:
Paper Check Conversion—Designed to facilitate a more efficient and reliable collection method, the paper check conversion process converts paper checks presented at government locations to ACH debits. More specifically, check conversion technology entails:
During the Treasury's fiscal year that ended Sept. 30, 105,000 checks totaling $51.8 million were collected through the paper check conversion.
Direct Deposit—From the beginning, the Treasury has been a leading advocate of direct deposit, and the Treasury continues to promote this service to individuals receiving federal payments. During its 2001 fiscal year, the Treasury disbursed 71 percent of its 947 million payments electronically, up from 50 percent during the 1995 fiscal year.
Federal benefit payments account for 81 percent of all federal payments, with Social Security Administration (SSA) and Supplemental Security Income (SSI) payments accounting for the majority of these benefit payments. While 78.5 percent of SSA and 49.7 percent of SSI payments are made electronically, the largest volume of payments still made through paper check consists of federal benefit payments and tax refunds.
ETA—Through its research, the Treasury found that a significant portion of federal benefit recipients do not have a bank account even though they receive their benefits via check. To encourage these recipients to open bank accounts and receive electronic payments, the Treasury developed its low-cost Electronic Transfer Account (ETA). Anyone who receives a federal benefit, wage, salary or retirement payment now can open an ETA.
ETAs are offered through a network of financial institutions nationwide, referred to as ETA providers. Some basic features—such as the $3 maximum monthly charge—are standard, regardless of the ETA provider chosen. To compensate for this price ceiling, the Treasury reimburses ETA providers $12.60 for each ETA they open.
These initiatives demonstrate the Treasury's commitment to reaching its goal of 100 percent electronic collections and disbursements. To learn more about ways your institution can actively participate in these electronic services, please visit these web sites:
Keep up with what’s new and noteworthy at the St. Louis Fed. Sign up now to have this free monthly e-newsletter emailed to you.