The Internal Revenue Service issued advice on Friday to employers who outsource their payroll duties to third-party service providers.
In a tax tips email, the IRS referred to recent prosecutions of individuals and companies that pretended to be payroll service providers and instead stole funds intended for payment of employment taxes. The IRS noted that the employer is ultimately responsible for depositing and paying federal tax liabilities.
“Even though you forward the tax payments to the third party to make the tax deposits, you—the employer—are the responsible party,” the IRS cautioned. “If the third party fails to make the federal tax payments, the IRS may assess penalties and interest. The employer is liable for all taxes, penalties and interest due. The IRS can also hold you personally liable for certain unpaid federal taxes.”
The IRS added that if there are any issues with an employer’s account, the agency will send correspondence to the address it has on record. The IRS also strongly recommended that employers do not change the address of record to that of the payroll service provider, as it could limit an employer’s ability to stay informed of tax matters involving their business.
The IRS also urged employers to choose a payroll service provider that uses the Electronic Federal Tax Payment System. Employers are also able to register on the EFTPS system to get their own PIN to verify the payments.
For more information on the responsibilities of employers outsourcing payroll, payroll service providers and EFTPS, visit www.irs.gov, along with these links:
• Outsourcing Payroll and Third Party Payers
• Outsourcing Payroll Duties
• EFTPS: The Electronic Federal Tax Payment System
• Publication 966 - The Secure Way to Pay Your Federal Taxes for Businesses and Individuals