Fact Sheet 2013-9
Noting that there have been a number of cases of unscrupulous behavior by third-party payers of payroll taxes, IRS has issued a series of tips for employers who outsource their payroll duties.
Background. A reporting agent (RA) is someone authorized by an employer to perform various payroll tax-related functions including filing payroll tax forms and making payroll tax deposits and payments electronically. (Rev Proc 2012-32, 2012-34 CB 267) Other third parties are Form 2678 agents (see Rev Proc 84-33, 1984-1 CB 502) and payroll service providers (PSPs). For an overview of how the duties and obligations of reporting agents, Form 2678 agents, and PSPs differ from one another, see the Third Party Arrangement Chart on www.irs.gov.
Employer’s responsibilities when it outsources payroll duties. Like employers who handle their own payroll duties, employers who outsource those duties are still legally responsible for any and all payroll taxes due. Those employers are responsible for any taxes withheld as well as the employer’s share of social security and Medicare taxes. This is true even if the employer forwards tax amounts to a PSP or RA to make the required deposits or payments.
IRS’s tips. Here are some steps employers can take to protect themselves from unscrupulous third-party payers:
… Enroll in the Electronic Federal Tax Payment System (EFTPS), and make sure the PSP or RA uses EFTPS to make tax deposits. Doing so gives employers online access to their payment history when deposits are made under their Employer Identification Number; this capacity enables employers 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, either online or by phone.
… Refrain from substituting the third party’s address for the employer’s address. Though employers have the option of making or agreeing to such a change, IRS recommends that employers continue to use their own address as the address on record with IRS. Doing so ensures that the employer will continue to receive bills, notices, and other account-related correspondence from IRS. It also gives employers a way to monitor the third-party payer and easily spot any improper diversion of funds.
… Contact IRS about any IRS bills or notices, and do so as soon as possible. This is especially important if it involves a payment that the employer believes was or should have been made by a third-party payer.
… For employers who choose to use an RA, be aware of the special rules that apply to RAs. Among other things, RAs generally must use EFTPS and file payroll tax returns electronically. They also must provide employers with a written statement detailing the employer’s responsibilities; that statement must include a reminder that the employer, not the RA, is still legally required to timely file returns and pay any tax due. The statement must be provided upon entering into a contract with the employer and at least quarterly after that.
… Become familiar with the tax due dates that apply to employers.
References: For payroll taxes, see FTC 2d/FIN ¶ S-5500 ; United States Tax Reporter ¶ 35,014 ; TaxDesk ¶ 559,500 ; TG ¶ 9110 . For reporting agents, see FTC 2d/FIN ¶ S-1679 ; United States Tax Reporter ¶ 60,114.08 ; TaxDesk ¶ 572,006 .
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