Many employers outsource their payroll
and related tax duties to third-party payers such as payroll service providers
and reporting agents. Reputable third-party payers can help employers
streamline their business operations by collecting and timely depositing
payroll taxes on the employer’s behalf and filing required payroll tax returns
with state and federal authorities.
Though most of these businesses
provide very good service, there are, unfortunately, some who do not have their
clients’ best interests at heart. Over the past few months, a number of these
individuals and companies around the country have been prosecuted for stealing
funds intended for the payment of payroll taxes. Examples of these successful
prosecutions can be found on IRS.gov.
Like employers who handle their own
payroll duties, employers who outsource this function are still legally
responsible for any and all payroll taxes due. This includes any federal income
taxes withheld as well as both the employer and employee’s share of social
security and Medicare taxes. This is true even if the employer forwards tax
amounts to a PSP or RA to make the required deposits or payments. For an
overview of how the duties and obligations of agents, reporting agents and
payroll service providers differ from one another, see the Third Party
Arrangement Chart on IRS.gov.
Here are some steps employers can take
to protect themselves from unscrupulous third-party payers.
in the Electronic
Federal Tax Payment System and make sure the PSP or RA uses EFTPS to
make tax deposits. Available free from the Treasury Department, EFTPS gives
employers safe and easy online access to their payment history when deposits
are made under their Employer Identification Number, enabling them to monitor
whether their third-party payer is properly carrying out their tax deposit
responsibilities. It also gives them the option of making any missed deposits
themselves, as well as paying other individual and business taxes
electronically, either online or by phone. To enroll or for more information,
call toll-free 800-555-4477or visit www.eftps.gov.
from substituting the third-party’s address for the employer’s address. Though
employers are allowed to and have the option of making or agreeing to such a change,
the IRS recommends that employer’s continue to use their own address as the
address on record with the tax agency. Doing so ensures that the employer will
continue to receive bills, notices and other account-related correspondence
from the IRS. It also gives employers a way to monitor the third-party payer
and easily spot any improper diversion of funds.
the IRS about any bills or notices and do so as soon as possible. This is
especially important if it involves a payment that the employer believes was
made or should have been made by a third-party payer. Call the number on the
bill, write to the IRS office that sent the bill, contact the IRS business tax
hotline at 800-829-4933 or visit a local IRS office. See Receiving
a Bill from the IRS on IRS.gov for more information.
employers who choose to use a reporting agent, be aware of the special rules
that apply to RAs. Among other things, reporting agents are generally required
to use EFTPS and file payroll tax returns electronically. They are also
required to provide employers with a written statement detailing the employer’s
responsibilities including a reminder that the employer, not the reporting
agent, is still legally required to timely file returns and pay any tax due.
This statement must be provided upon entering into a contract with the employer
and at least quarterly after that. See Reporting
Agents File on IRS.gov for more information.
- Become familiar with the tax due
dates that apply to employers, and use the Small
Business Tax Calendar to keep track of these key dates.