Tax Remittance: How It Works and Why It Matters

Tax remittance is the final step in the tax cycle, when an individual or business remits taxes to the taxing authority. For income tax, this is a percentage of earnings. For indirect tax, like sales tax, VAT, or GST, this is the tax collected from customers. Businesses are also required to remit payroll tax on behalf of their employees. 

For businesses, tax remittance gets tricky because they’re dealing with multiple tax types and multiple jurisdictions. 

In the US, a business may pay income and payroll tax to a state’s taxing authority and the IRS. And then they may be required to remit sales tax to multiple states. Some businesses must also remit excise tax. 

Businesses selling internationally are often required to remit VAT or GST to tax authorities in multiple countries. And that’s not to mention varying due dates. Their US payroll tax may be due monthly, sales tax due quarterly, and VAT in one of their foreign markets due annually.

Modern SaaS and AI firms now manage tax remittance with automation. Here’s how. 

What Is Tax Remittance?

Tax remittance is when you send your tax payment into the taxing authority. Unlike tax collection, tax remittance is the end of the tax cycle, when previously collected funds are turned into taxing authorities. 

Both individuals and businesses have tax remittance duties. Individuals may pay income tax to their federal or state tax agencies. Businesses generally remit more tax types. This includes income tax, payroll tax, and indirect takes like sales tax, VAT, or GST. 

In other words, when you charge your customer sales tax or VAT at checkout, you're collecting. When you send that money to the state revenue department, you're remitting.

Common Types of Tax Remittance

Sales Tax Remittance

Businesses collect sales tax from customers at the point of sale and then remit it back to state and local taxing authorities. The timing depends on your business’s sales volume and the jurisdiction’s rules. Highly volume sellers generally remit monthly. Low-volume sellers generally remit annually. And most small to medium-sized businesses remit quarterly. 

Most states accept ACH debit or electronic funds transfer (EFT) for sales tax payments. Some also take wire transfers for large amounts. Each state sets its own due dates. California might want you to remit from your financial institution on the last day of the month,  while Texas wants your payment on the 20th. Missing deadlines can mean penalties and interest. These are state-specific, but often 5-25% of tax due.

Need to remit VAT or GST to another country? Unless you have an in-country bank account, this requires a wire transfer. Not only do wire transfers come with a fee, they require you to pay in local currency.

Payroll Tax Remittance

Businesses with employees must remit payroll tax at both the federal and state level. 

Employers withhold Social Security, Medicare, and federal income tax from employee paychecks, then remit those funds to the US Treasury. Remittance frequency depends on the company’s total tax liability. Large employers must remit semi-weekly, while everyone else remits monthly. 

Employers use IRS Form 941 to remit quarterly federal tax returns. They use Form 940 for annual unemployment tax. Small businesses with less than $1,000 in annual liability file Form 944 once a year. Most businesses use ACH transfers through the Electronic Federal Tax Payment System (EFTPS) to make deposits. Missing a federal payroll tax deposit can lead to penalties from 2-15%.

Multi-state operations add complexity. Each state has its own rules and laws when it comes to withholding requirements, unemployment insurance rates, and tax filing schedules. A business with employees in New York, California, and Georgia has to manage three different state payroll tax systems on top of federal payroll taxes. States set their own fines and penalties when it comes to late remittance.

Estimated Tax Payments

Self-employed individuals and C corporations are required to pay quarterly estimated taxes to cover their expected annual tax liability. These payments go toward income and self-employment taxes.

Quarterly estimated tax payments are due on April 15, June 15, September 15 and January 15. If that date falls on a weekend or holiday, remittances are due the next business day. Most businesses use IRS Direct Pay or EFTPS for these payments. You can also pay by credit card through IRS-authorized processors, though they charge a convenience fee.

Calculating the right amount of quarterly estimated taxes is tricky. If you pay too little, you’ll owe penalties at the end of the year. If you pay too much, you’re lending the IRS cash that you could use in your business throughout the year. Fortunately, the IRS has a Safe Harbor rule. As long as you pay 100% of the tax you owed last year, you’re safe. Note that this amount jumps to 110% if you’re high income.  

Methods of Tax Remittance

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ACH Debit & EFTPS

ACH debit pulls money directly from your bank account to pay taxes. The IRS’s Electronic Federal Tax Payment System (EFTPS), which handles federal income and payroll taxes, uses ACH debit. 

With EFTPS, businesses can schedule tax payments up to 365 days in advance, as well as set regular recurring payments for regular deadlines like payroll taxes. This free system provides immediate confirmation and maintains up to 16 months of payment history.

Many state tax systems have their own ACH systems. Whether paying federal or state tax, ACH is often secure, fast, and free of surcharges.

Wire Transfers

Wire transfers are convenient for large or timely tax payments. They are often used for remittances to foreign countries.  While faster and more secure than checks, they often come with bank fees of $15 to $30.

International businesses typically use wire transfers when ACH isn’t available. For example, if your US-based company owes VAT to a European country, a wire transfer may be your only electronic payment option. It’s vital to remember to include the right reference numbers so your payment is routed to the right taxing authority. Further, you’re required to pay in local currency, so be ready for currency conversion.

Unfortunately, wire transfers are manual. You’ll need to create them one-by-one and track them individually in your accounting. 

Credit, Debit Cards & Money Orders

The IRS and many states accept credit and debit cards through authorized processors like Pay1040 and PayUSAtax. However, there is generally a processing fee of ~2% to use this payment method.

Companies can also opt to use money orders or cashier’s checks issued by the banks. Like wire transfers these require a flat fee to issue. 

While these tried and true methods work, they require both fees and the manual work of mailing remittances, and should be a last resort for modern business. 

Automated Payments via Sphere

Sphere transforms tax remittance from a time-consuming, multi-step process to a single automated workflow. No more logging into multiple state or country portals and juggling payment methods. With Sphere, you get one consolidated ACH pull per period.

Sphere automatically calculates what you owe across jurisdictions. On the due date, it initiates a single ACH debit from your account. Then it disburses that amount to each taxing authority: federal, state, local and even international. 

The platform maintains a complete audit trail. Every payment links to its original calculations, so you–and auditors–know why you remitted the amount you did. Sphere’s dashboard gives your finance team real-time visibility into current and upcoming tax obligations and their status. There’s no more scrambling to meet deadlines or wondering if someone else sent a quarterly tax payment.

For global companies, Sphere handles currency conversion and international wire transfers automatically. Sphere’s automation saves time, lowers fees, and ultimately reduces your tax compliance risk for every type of tax.

Why Tax Remittance Compliance Matters

Late or incorrect tax remittance means fines and penalties. The IRS charges 0.5% per month on late payments, up to 25% of the tax due. State penalties vary but often start at 5% and climb from there.

Interest also compounds daily from the due date until paid in full. Current IRS interest rates hover around 8% annually. A $10,000 late payment can cost $500 in penalties and $66 in interest per month.

Indirect tax payments, such as sales tax, VAT, and GST also come with hefty penalties and interest. These fees can range from 1% of the tax due in the city of Chicago to 300% in the United Arab Emirates. In general, the longer you wait to pay, the higher the penalty and interest.

Beyond financial damage, non-compliance can cause other damage. Failing to file sales tax can mean your sales tax permit is revoked and you can no longer sell in that state. Failing to pay the IRS can lead to tax liens and frozen assets. Serious cases of failure to remit tax can even lead to criminal charges. 

Documentation requirements add another layer of complexity. Tax authorities expect detailed records linking every remittance to specific transactions. During audits, you'll need to prove not just that you paid, but that you paid the right amount at the right time to the right authority.

Automation is key for busy multinational businesses dealing with tax remittance in multiple states and countries. 

How Sphere Simplifies Global Tax Remittance

Sphere turns tax remittance from a time-consuming hassle to an automated background process. The platform monitors transactions in real-time and continuously calculates tax obligations. 

When it comes to indirect taxes like VAT, GST, and sales tax, AI-driven monitoring detects when you reach tax thresholds in new jurisdictions. From there, Sphere helps you automatically register, and ensures you collect the right amount of tax every time. 

Sphere handles tax remittance. The platform aggregates obligations across all tax types and jurisdictions. It initiates a single ACH debit from your account, then distributes the funds to each tax authority, whether you’re paying payroll tax, sales tax in California, or VAT to South Korea. For international businesses, Sphere also manages currency conversion at competitive rates.

The best part? Sphere is far more affordable than bank wires and other traditional remittance solutions.

Ready to simplify your tax remittance and compliance?

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Compliance Becomes Simple When Automation Leads the Way

Tax remittance doesn't have to be a monthly nightmare of logins, calculations, and manual payments. Modern automation handles the complexity while you focus on growing your business.

With Sphere, tax remittance runs on autopilot. No more missed deadlines. No more penalty notices. No more scrambling at the end of the tax period. Just accurate, on-time payments to every tax authority, every time.

Sphere eliminates manual filing across all your jurisdictions. It prevents penalties before they happen. And it keeps you globally compliant as you expand into new markets.