IRS video helps monitor outsourced payroll

Employer remains responsible

Posted August 13, 2018

Many employers hire third-party payroll service providers (PSPs) to perform their payroll processing functions and tax-related duties, including making employment tax deposits. Even though the employer may forward funds to the PSP, the employer is responsible if the PSP fails to make any tax payments, including any penalties or interest for late payments. To help employers with monitoring those outsourced duties on the Electronic Federal Tax Payment System (EFTPS), the IRS has created a video.

The two-minute YouTube video, includes information on the following:

  • Using an EFTPS Inquiry PIN to monitor tax deposits
  • The benefits of creating a separate EFTPS account
  • Setting up EFTPS notifications

Verifying payment

The IRS recommends employers ensure that PSPs are using the EFTPS so they can confirm whether payments are being made. Note that electronic payment is required for payroll taxes over $200,000 in a calendar year. Employers should register on the EFTPS system to get their own PIN and periodically verify payments. A red flag should go up the first time a service provider misses a payment or makes a late payment. Employers may make additional payments that the PSP is not making, such as estimated tax payments.

If an employer suspects a PSP of improper or fraudulent activities involving the deposit of federal taxes or the filing of returns, the employer may file a complaint. The IRS will expedite the handling and investigation of these complaints. Remember, employers are ultimately responsible for paying income taxes as well as both the employer and employee portions of Social Security and Medicare taxes.

Reporting agents

PSPs can be reporting agents authorized to perform certain acts on behalf of its clients’ employees. A reporting agent provides payroll services for one or more employers (clients) using each client’s employer identification number (EIN) to file returns on the client’s behalf. A reporting agent may also deposit and pay taxes on the client’s behalf.

The designation of a reporting agent, however, does not relieve the employer from its responsibility of ensuring that all its federal employment tax obligations are met. A reporting agent normally assumes no liability for its clients’ tax withholding, reporting, payment, and/or filing duties, but another type of designation may create for joint liability.

Under one form of designation, however, the agent agrees to assume liability along with the employer for tax withholding responsibilities. The IRS may seek to collect any unpaid taxes from both the employer and this type of agent. This designation does not apply to Federal Unemployment Tax Act (FUTA) taxes, with a limited exception provided for certain household workers.

This article was written by Darlene M. Clabault, SHRM-CP, PHR, CLMS and Edwin Zalewski, SHRM-CP, PHR of J. J. Keller & Associates, Inc.


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