Outsourcing Payroll Duties

Outsourcing payroll tasks can be a sound organization practice, however … Know your tax duties as an employer

Many companies contract out some or all their payroll and associated tax tasks to third-party payroll service suppliers. Third-party payroll service companies can simplify service operations and help satisfy filing due dates and deposit requirements. A few of the services they provide are:

– Administering payroll and employment taxes on behalf of the employer where the employer provides the funds at first to the third-party.
– Reporting, collecting and depositing employment taxes with state and federal authorities.

Employers who contract out some or all their payroll obligations should think about the following:

– The company is ultimately responsible for the deposit and payment of federal tax liabilities. Although the employer might forward the tax totals up to the third-party to make the tax deposits, the employer is the responsible party. If the third-party fails to make the federal tax payments, then the IRS may evaluate penalties and interest on the employer’s account. The employer is accountable for all taxes, charges and interest due. The company may also be held personally liable for specific unpaid federal taxes.
– If there are any issues with an account, then the IRS will send correspondence to the company at the address of record. The IRS strongly suggests that the employer does not change their address of record to that of the payroll company as it may considerably restrict the employer’s capability to be notified of tax matters involving their company.
– Electronic Funds Transfer (EFT) need to be used to transfer all federal tax . Generally, an EFT is used Electronic Federal Tax Payment System (EFTPS). Employers must guarantee their payroll companies are using EFTPS, so the companies can confirm that payments are being made on their behalf. Employers need to register on the EFTPS system to get their own PIN and utilize this PIN to periodically verify payments. A warning should increase the very first time a 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 companies to make any additional tax payments that their third-party provider is not making on their behalf such as estimated tax payments. There have been prosecutions of people and companies, who acting under the look of a payroll company, have actually taken funds intended for payment of work taxes.

EFTPS is a safe, accurate, and simple to utilize service that offers an instant confirmation for each transaction. This service is offered free of charge from the U.S. Department of Treasury and permits employers to make and validate federal tax payments digitally 24 hr a day, 7 days a week through the internet or by phone. For more details, employers can register online at EFTPS.gov or call EFTPS Customer care at 800-555-4477 for an enrollment type or to consult with a client service agent.

Remember, employers are ultimately accountable for the payment of income tax kept and of both the company and worker parts of social security and Medicare taxes.

Employers who believe that a bill or notification received is a result of an issue with their payroll company must call the IRS as quickly as possible by calling the number on the expense, composing to the IRS workplace that sent out the bill, calling 800-829-4933 or checking out a regional IRS office. To learn more about IRS notifications, costs and payment alternatives, describe Publication 594, The IRS Collection Process PDF.