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.
- Enroll 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.
- Refrain 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.
- Contact 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.
- For 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.
The
key issue here is that you, the employer, are ultimately responsible for the
payments even if the third party agent misappropriates the funds. Please call our office for more information on this topic.
(610) 629-5207
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