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Third Party Arrangement Chart

There are some differences between a payroll service provider, reporting agent authorized under Form 8655, Reporting Agent Authorization (PDF) and an agent appointed using Form 2678, Employer/Payer Appointment of Agent (PDF).

A Form 8655 (PDF) reporting agent provides payroll services for one or more employers, using each client’s (employer’s) employer identification number (EIN) to file separate returns (generally e-file only) on the client’s behalf. A reporting agent may also deposit and pay taxes on the client's behalf.

A Form 2678 (PDF) agent acts as the employer, assuming liability along with the employer for the employer’s Social Security, Medicare and federal income tax withholding responsibilities. An agent appointed under Form 2678 files aggregate returns (e-file or paper) using the agent’s EIN.

The chart below illustrates the most significant differences.

Third-Party Arrangement Authority Form 2678 Agent Form 8655 Reporting Agent (RA) Payroll Service Provider (PSP)
Can file certain employment tax returns? Yes. The agent files an aggregate return for all employers/clients, using the agent’s EIN. Agent can file those returns listed on Form 2678 appointment request. Yes. The RA signs and is generally required to file electronically a separate return for each client, using the employer/clients EIN. The RA must e-file returns listed in Rev. Proc. 2007-38 and shown on the Form 8655 authorization request, if the forms are available for electronic filing. Only forms that are not able to be electronically filed can be filed using paper forms. Yes. The PSP prepares a separate return for each client using the client’s EIN.  After employer/client signs the return, either the client or the PSP may file the return on paper.
Can make deposits and payments for employment taxes reported on certain returns? Yes. The agent deposits and pays for tax liabilities the agent has aggregated and reported using the agent’s EIN, according to the agent’s deposit requirements.  Agent can make deposits and payments for those employment taxes reported on returns listed on Form 2678 appointment request. Yes. The RA deposits and pays tax liabilities on behalf of each client, using the client’s separate EIN, according to each client’s deposit requirements. Yes. The PSP deposits and pays tax liabilities on behalf of each client, using the client’s separate EIN, according to each client’s deposit requirements.
Can file Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return? No. [1] Clients must file FUTA tax returns using their own EINs. Yes. RA signs and generally files electronically separate returns using client’s EIN. Yes. After employer/client signs the return, client or PSP files separate returns using client’s EIN.
Has employment tax liability? Yes. Client and agent are both liable for paying the client’s employment taxes, filing returns, and making deposits and payments for the taxes reported. No. Employer/Client, not RA, remains liable for ensuring all tax returns are filed timely and all deposits and payments are made timely. No. Employer/Client, not the PSP, remains liable for ensuring all tax returns are filed timely and all deposits and payments are made timely.
Specific guidance in addition to Code, regulations and Circular E. Rev. Proc. 70-6;
Notice 2003-70
(state and local governmental agents).
Rev. Proc. 2007-38.  

[1] Exceptions may apply for an agent where the employer is a disabled individual or other welfare recipient receiving in home-care through a state or local program. See Rev. Proc. 80-4 and Notice 2003-70 for special instructions.

Page Last Reviewed or Updated: 08-Apr-2014