“Use a Trusted Payroll Provider” – That is the latest message from the IRS sent to warn business owners to do their due diligence when choosing a payroll provider.
“Most third-party payroll services do a good job helping small businesses meet their deadlines and payroll obligations,” said Eric Hylton, Commissioner, Small Business/Self Employed Division, IRS. “But each year some employers fall prey to unscrupulous third-parties that fail to send the IRS the taxes entrusted to them. We are vigilant in pursuing these third parties, but too often their clients – the employers − are left on the hook. The IRS wants all employers to take the necessary steps to protect themselves.”
In addition to providing the statement and warning above, the IRS developed a list of steps employers can take to protect themselves:
- Enroll in the Electronic Federal Tax Payment System and make sure the PSP or Reporting Agent uses EFTPS to make tax deposits. Available free from the Treasury Department, EFTPS gives employers safe and easy online access to their payment history when deposits are made under their Employer Identification Number, enabling them to monitor whether their PSP or RA is properly carrying out its tax deposit responsibilities. It also gives them the option of making any missed deposits themselves, as well as paying other individual and business taxes electronically, either online or by phone. To enroll or for more information, call toll-free 800-555-4477or visit www.eftps.gov.
- Reporting Agents are required to deposit clients’ taxes via EFTPS and, with limited exception, electronically file the tax returns. They are also required to provide clients a written statement reminding the employer that it, not the reporting agent, is ultimately responsible for the timely filing of returns and payment of taxes. This statement must be provided upon entering into a contract with the employer and at least quarterly after that. See Reporting Agents File on IRS.gov for more information.
- Refrain from substituting the third party’s address for the employer’s address. Though employers are allowed to make or agree to such a change, the IRS recommends that an employer continue to use its 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. It also gives employers a way to monitor the third party and easily spot any improper diversion of funds.
- Contact the IRS about any bills or notices and do so as soon as possible. This is especially important if it involves a payment that the employer believes was made or should have been made by a third party. Call the number on the bill, write to the IRS office that sent the bill, contact the IRS business tax hotline at 800-829-4933, or visit a local IRS office. See Notices for Past Due Tax Returns on IRS.gov for more information.
Whether you are a business owner or a tax and accounting professional providing/recommending payroll services, following the 4 steps above could help you protect your business and/or that of your clients.