IRS Tax Tip 2020-112, September 1, 2020
When hiring a company to handle payroll and payroll tax, employers should carefully choose their payroll service provider. This can help a business avoid missed deposits for employment taxes and other unpaid bills.
Most of these businesses provide quality service but there are some who don't have their clients' best interests in mind. Each year, there are a few payroll service providers who don't submit their client's payroll taxes and closedown abruptly. The damage hits their unsuspecting clients hard.
Typically, these clients remain legally responsible for paying the taxes due, even if the employer sent funds to the payroll service provider for required deposits or payments.
Employers should understand their payroll and employment tax responsibilities and choose a trusted payroll service to handle this important job. Here are two options:
- A certified professional employer organization. Typically, CPEOs are solely liable for paying the customer's employment taxes, filing returns, and making deposits and payments for the taxes reported related to wages and other compensation.
- Reporting agent. This is a payroll service provider that informs the IRS of its relationship with a client using Form 8655, Reporting Agent Authorization, which is signed by the client. Reporting agents must deposit a client's taxes using the Electronic Federal Tax Payment System and can exchange information with the IRS on behalf of a client, such as to resolve an issue. They are also required to provide clients a written statement reminding the employer that it, not the reporting agent, is ultimately responsible for the timely filing of returns and payment of taxes.
IRS encourages employers to enroll in EFTPS and make sure its payroll service provider uses EFTPS to make tax deposits. It's free and it 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 payroll service provider is meeting its tax deposit responsibilities.
Employers should contact the IRS about any bills or notices received, especially payments managed by a third party. 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.
- Employment Taxes
- Outsourcing Payroll and Third Party Payers
- Third Party Arrangement Chart
- CPEO Customers – What You Need to Know
- Reporting Agents File