Many employers choose to streamline their business operations by outsourcing their payroll and tax-related duties to third party payers such as a payroll service or a reporting agency that collects and deposits payroll taxes on the employer’s behalf and files required payroll tax returns with the proper state and federal authorities.
Although these businesses can provide a good service there have been several recent incidents of companies around the country that have been prosecuted for stealing funds intended for payment of payroll taxes. Employers who hire outsourced services are still legally responsible for any and all payroll taxes due even if they are mishandled by an outsourced company. This includes any federal income taxes withheld as well as both the employer and the employee’s share of Social Security and Medicare taxes.
Here are some steps employers can take to protect themselves from dishonest third-party payers.
Enroll in the Electronic Federal Tax Payment System and make sure this system is used to make all of your business deposits. This service is available for free from the Treasury Department and gives employers safe and easy online access to their payment history when deposits are made under their specific Employer Identification Number.
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.
Contact the IRS about any bills or notices as soon as possible especially 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 or visit a local IRS office. See Receiving a Bill from the IRS for more information.
Reporting Agents are generally required to use EFTPS and file payroll tax returns electronically so be aware that special rules apply. Employers are also required to be provided with a written statement detailing the employer’s responsibilities including a reminder that the employer not the Reporting Agent is still legally required to file a timely return and pay any tax due. This statement must be provided upon entering into a contract with the employer and at least quarterly after that.
Use the Small Business Tax Calendar and become familiar with the tax due dates that apply to employers.
Protect your business and your assets by staying informed and aware of the proper procedures for outsourcing your payroll. If you need assistance on the best way to manage your businesses payroll contact Lindemeyer CPA and we will point you in the right direction.