Outsourcing payroll duties can be a sound service practice, but ... Know your tax obligations as an employer


Many employers outsource some or all their payroll and associated tax responsibilities to third-party payroll provider. Third-party payroll company can streamline service operations and help satisfy filing deadlines and deposit requirements. Some of the services they offer are:


- Administering payroll and work taxes on behalf of the employer where the employer supplies the funds initially to the third-party.
- Reporting, gathering and depositing work taxes with state and federal authorities.


Employers who contract out some or all their payroll obligations must consider the following:


- The employer is ultimately responsible for the deposit and payment of federal tax liabilities. Although the employer might forward the tax amounts to the third-party to make the tax deposits, the employer is the accountable party. If the third-party stops working to make the federal tax payments, then the IRS may evaluate charges and interest on the employer's account. The employer is responsible for all taxes, penalties and interest due. The employer may also be held personally liable for particular unpaid federal taxes.
- If there are any concerns with an account, then the IRS will send correspondence to the company at the address of record. The IRS highly suggests that the employer does not change their address of record to that of the payroll company as it may substantially restrict the employer's capability to be informed of tax matters involving their organization.
- Electronic Funds Transfer (EFT) must be utilized to transfer all federal tax deposits. Generally, an EFT is made using Electronic Federal Tax Payment System (EFTPS). Employers must guarantee their payroll companies are using EFTPS, so the companies can confirm that payments are being made on their behalf. Employers should sign up on the EFTPS system to get their own PIN and utilize this PIN to regularly validate payments. A red flag must increase the very first time a service provider misses a payment or makes a late payment. When an employer signs up on EFTPS they will have online access to their payment history for 16 months. In addition, EFTPS allows companies to make any extra tax payments that their third-party provider is not making on their behalf such as approximated tax payments. There have actually been prosecutions of individuals and companies, who acting under the look of a payroll service provider, have taken funds meant for payment of employment taxes.


EFTPS is a protected, precise, and easy to use service that provides an immediate verification for each transaction. This service is provided complimentary of charge from the U.S. Department of Treasury and enables employers to make and validate federal tax payments digitally 24 hours a day, 7 days a week through the internet or by phone. For additional information, companies can enlist online at EFTPS.gov or call EFTPS Customer Service at 800-555-4477 for an enrollment type or to consult with a customer support representative.


Remember, employers are eventually responsible for the payment of earnings tax kept and of both the company and staff member portions of social security and Medicare taxes.


Employers who think that a costs or notice received is a result of a problem with their payroll service company must contact the IRS as quickly as possible by calling the number on the costs, composing to the IRS office that sent the costs, calling 800-829-4933 or visiting a local IRS workplace. For more details about IRS notifications, costs and payment alternatives, describe Publication 594, The IRS Collection Process PDF.