Outsourcing Payroll Duties

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

Many employers outsource some or all their payroll and related tax tasks to third-party payroll company. Third-party payroll provider can streamline service operations and help satisfy filing due dates and deposit requirements. A few of the services they offer are:

– Administering payroll and work taxes on behalf of the company 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 duties must think about the following:

– The company is eventually responsible for the deposit and payment of federal tax liabilities. Although the employer may forward the tax totals up to the third-party to make the tax deposits, the employer is the accountable party. If the third-party fails to make the federal tax payments, then the IRS might assess penalties and interest on the company’s account. The company is responsible for all taxes, charges and interest due. The company may also be held personally responsible for specific unpaid federal taxes.
– If there are any concerns with an account, then the IRS will send out correspondence to the employer at the address of record. The IRS strongly recommends that the company does not alter their address of record to that of the payroll company as it may significantly restrict the employer’s ability to be notified of tax matters including their company.
– Electronic Funds Transfer (EFT) need to be used to transfer all federal tax deposits. Generally, an EFT is used Electronic Federal Tax Payment System (EFTPS). Employers ought to ensure their payroll suppliers are using EFTPS, so the employers can confirm that payments are being made on their behalf. Employers must sign up on the EFTPS system to get their own PIN and utilize this PIN to regularly verify payments. A red flag must go up the very first time a service company misses a payment or makes a late payment. When a company registers on EFTPS they will have on-line access to their payment history for 16 months. In addition, EFTPS allows employers to make any additional tax payments that their third-party service provider is not making on their behalf such as estimated tax . There have been prosecutions of people and companies, who acting under the look of a payroll service company, have taken funds intended for payment of employment taxes.

EFTPS is a safe and secure, accurate, and easy to utilize service that supplies an instant verification for each deal. This service is offered totally free of charge from the U.S. Department of Treasury and enables employers to make and verify federal tax payments digitally 24 hr a day, 7 days a week through the web or by phone. For more details, companies can enlist online at EFTPS.gov or call EFTPS Customer Service at 800-555-4477 for a registration form or to consult with a customer care representative.

Remember, employers are ultimately responsible for the payment of earnings tax withheld and of both the employer and worker portions of social security and Medicare taxes.

Employers who believe that an expense or notice gotten is a result of an issue with their payroll provider need to contact the IRS as soon as possible by calling the number on the expense, writing to the IRS office that sent out the bill, calling 800-829-4933 or visiting a local IRS office. For more details about IRS notifications, bills and payment options, refer to Publication 594, The IRS Collection Process PDF.