Many employers outsource some or all of their payroll and related tax duties (i.e., withholding, reporting, and paying social security, Medicare, and income taxes) to a third party which can save time, money and frustration; however, be alert that outsourcing doesn’t relieve you of your tax obligations.
Here is a summary:
- The employer is ultimately responsible for the deposit and payment of federal tax liabilities, even though the employer may forward the tax amounts to the third-party to make the tax deposits. If the third-party fails to make the federal tax payments, the IRS may assess penalties and interest on the employer’s account. The employer is liable for all taxes, penalties and interest due; and may also be held personally liable for certain unpaid federal taxes.
- If there are any issues with an account, the IRS will send correspondence to the employer at the address of record. The IRS strongly suggests that the employer does not change their address of record to that of the payroll service provider as it may significantly limit the employer’s ability to be informed of tax matters involving their business.
- Employers should ensure their payroll service providers are using EFTPS (Electronic Federal Tax Payment System) so the employers can confirm that payments are being made on their behalf. Everyone should use EFTPS (the Treasury regulations require electronic payment for payroll taxes over $200,000 in a calendar year).
- Employers should register on the EFTPS system to get their own PIN and use this PIN to periodically verify payments.
- A red flag should go up the first time a service provider misses or makes a late payment.
- Employers have on-line access to their payment history for 16 months.
- EFTPS allows employers to make any additional tax payments that their third-party provider is not making on their behalf such as estimated tax payments.
Details for business owner responsibilities can be found at: www.irs.gov – Search: Outsourcing-Payroll-Duties. Use www.eftps.gov to enroll for EFTPS online.