Choosing a third party payroll service

Your Guide to State, Local, Federal, Estate + International Taxation

Employers need to choose wisely when hiring a third party payroll service to handle their payroll and payroll taxes. A good company will help your business avoid missed deposits for employment taxes and other unpaid bills.

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There are many payroll services that provide quality services but be careful to avoid bad parties. A few companies have closed abruptly resulting in payroll taxes not being submitted. Their unsuspecting clients remain legally responsible for paying the taxes due, even if the employer has sent the required deposits or payments to the payroll service provider.

To understand your payroll and employment tax responsibilities and choose a trusted payroll service; the IRS recommends a couple options.

Use a certified professional organization

These organizations are solely liable for paying the customer employment taxes, filing returns and making deposits and payments for the taxes reported related to wages and compensation. Known as a CPEO, you would first enter into a service contract with them in which they would submit Form 8973, Certified Professional Employer Organization/Customer Reporting Agreement to the IRS.

They file combined employment tax returns, make deposits and pay the combined tax liabilities of their customers using the CPEO’s Employer Identification Number (EIN).You can find a CPEO on the IRS.gov Public listings page.

Use a Reporting agent

This is a payroll service that files payroll reports and makes tax payments for you once you have signed Form 8655, Reporting Agent Authorization which informs the IRS of its relationship. Reporting agents with the mandatory use of the Electronic Federal Tax Payment System (EFTPS), deposit your payroll taxes and can exchange information with the IRS, such as to resolve an issue on your behalf. You will receive a required written statement as a reminder that you, not the reporting agent, are ultimately responsible for the timely filling of returns and payments.

The IRS encourages employers to enroll in EFTPS and to ensure that its payroll service provider uses EFTPS to make tax deposits. This online service is free and gives you safe and easy access to your payment history for deposits made under your EIN. This enables you to monitor whether your payroll service provider is meeting its tax deposit responsibilities.

The IRS should be contacted about any bills or notices received, especially if payments are managed by a third party. Call the phone number on the notice, contact the IRS business tax hotline (800-829-4933) or write to the IRS office that sent the notice.

Don’t be left hanging. Choose your payroll provider wisely. If you need help selecting a third party payroll service, contact your Henry+Horne advisor.

Natalie Hunt