Many employers outsource their payroll and related tax duties to third-party payers such as payroll service providers and reporting agents. Reputable third-party payers can help employers streamline their business operations by collecting and timely depositing payroll taxes on the employer’s behalf and filing required payroll tax returns with state and federal authorities.

Though most of these businesses provide very good service, there are, unfortunately, some who do not have their clients’ best interests at heart. Over the past few months, a number of these individuals and companies around the country have been prosecuted for stealing funds intended for the payment of payroll taxes. Examples of these successful prosecutions can be found on IRS.gov.

Like employers who handle their own payroll duties, employers who outsource this function are still legally responsible for any and all payroll taxes due. This includes any federal income taxes withheld as well as both the employer and employee’s share of social security and Medicare taxes. This is true even if the employer forwards tax amounts to a PSP or RA to make the required deposits or payments. For an overview of how the duties and obligations of agents, reporting agents and payroll service providers differ from one another, see the Third Party Arrangement Chart on IRS.gov.

Here are some steps employers can take to protect themselves from unscrupulous third-party payers.

• Enroll in the Electronic      Federal Tax Payment System  and make sure the PSP or RA 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 third-party payer is properly carrying out      their 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.
• Refrain from substituting the third-party’s address for      the employer’s address. Though employers are allowed to and have the      option of making or agreeing to such a change, the IRS recommends that      employer’s 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. It also gives employers a way to monitor the third-party payer 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 payer. 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 Receiving      a Bill from the IRS on IRS.gov for more information.
• For employers who choose to use a reporting agent, be      aware of the special rules that apply to RAs. Among other things,      reporting agents are generally required to use EFTPS and file payroll tax      returns electronically. They are also required to provide employers with a      written statement detailing the employer’s responsibilities including a      reminder that the employer, not the reporting agent, is still legally      required to timely file returns and pay any tax due. 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.
• Become familiar with the tax due      dates that apply to employers, and use the Small      Business Tax Calendar to keep track of these key dates.

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