Answer by Ken Golliher: You are allowed to do it and the IRS would be happy to have the money. Whether you want to do it is another issue. In any case, you should require written instructions and impose a significant charge for setting it up and each time a change is made. (Your written instructions will require some thought; e.g. what will you do if the customer dies?)
You are providing a significant service that may eliminate the customer's need to make quarterly payments via check or ACH. If your customer likes the service, he will tell his friends and they will want it too. It is likely that this request comes from a segment of the population that has some time on their hands and they may want to come in and just tweak that percentage a little every once in a while.
Charge for it now because you will eventually realize that you should have and when you attempt to institute the charge later you will have a rebellion.
Answer by John Burnett: The irony here, of course, is that the customer's wish can result in an appreciable drop in the interest amount the customer will end up with since interest won't compound on the amounts withheld.
Some bank's systems may not provide for setting withholding percentages at the account level. They may have only one percentage to work with. That might change the attractiveness of this service that you don't really want to offer.
First published on BankersOnline.com 3/27/06