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.
While outsourcing payroll can be a sound business practice, it is important to remember that, like employers who handle their own payroll duties, employers who outsource this function are still legally responsible for any and all payroll taxes. Though many third-party payer businesses provide very good service, there are some who do not have their clients' best interests at heart. In recent months, a number of these individuals and companies have been prosecuted for stealing funds intended for the payment of payroll taxes.
Here are 5 steps employers can take to protect themselves from unscrupulous third-party payers:
1. Enroll in EFTPS and Make Sure Your Third-Party Payer Uses It
Available free from the Treasury Department, the Electronic Federal Tax Payment System (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, visit http://www.eftps.gov/eftps/.
2. Don't Substitute the Third-Party's Address for Your Business Address
The IRS recommends that employers 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.
3. Contact the IRS About Any Bills or Notices
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.
4. Be Aware of Special Rules that Apply to Reporting Agents
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.
5. Become Familiar with Tax Due Dates
HR360's Outsourcing Payroll section provides valuable information on outsourcing your payroll and related tax duties.
And don't forget to download our FREE Federal Labor Laws by Company Size Chart, an easy-to-understand resource that makes it simple to know which federal labor laws apply to your company.
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