Outsourcing payroll processing, payroll tax remitting, and related tax duties to a third party can be a great idea for many companies; however, I encourage our Workforce Go! clients to stay on top of the rules related to third party payer arrangements set by the IRS in section 16 of Circular E, whether they choose to outsource the responsibility or not. To reinforce the importance, I am summarizing the main points for you in this blog post.
First, even though a third party is tasked to make deposits and payments on your behalf, you, as the employer, may be liable for taxes, penalties, and interest due.
Second, the IRS strongly recommends the employer’s address remain the address of record for any correspondence. Having correspondence sent directly to the third party payer sounds like a good idea to streamline the process, but it can also limit your ability to be informed about tax matters related to your business.
Finally, the IRS lists four common third party payers in this year’s Circular E. I recommend knowing and following IRS guidelines on whom to contract to perform payroll and related tax duties. The descriptions and liability vary among the four so I listed them here, along with a few notes on each one.
Payroll service provider (PSP):
A PSP helps administer payroll and payroll related duties on your behalf, using your EIN. Make sure the PSP uses EFTPS to make federal deposits so you can confirm the payments are made
A reporting agent is a type of PSP who may electronically sign and file forms using the employer's EIN. Employers must use Form 8655 to authorize a reporting agent to perform these functions on your behalf.
Agent with approved Form 2678:
An agent with an approved Form 2678 is authorized to perform certain functions using its own EIN. When using this agent, you and the agent are jointly liable for employment taxes and related tax duties for which the agent is authorized to perform
Payer designated under section 3504:
In some cases, the IRS may designate a third party payer on your behalf to perform certain employer duties. This payer performs tax duties under a service agreement using its own EIN. When using this designated payer, you and the payer are jointly liable for the employment taxes and related duties for which the third party payer is designated. Such payers include employee leasing companies and professional employer organizations.
Fortunately, our Workforce Go! partner, AmeriFlex Business Solutions is a trusted PSP and reporting agent with, in some cases, an approved Form 2678. However, Workforce Go! customers are not limited to outsourced payroll. With AmeriFlex Workforce Management Solution, users can either process payroll in house or outsource the responsibility, which, in my opinion, is the best of both worlds!
I encourage employers to read through the guidelines laid out by the IRS in this year’s Circular E to weigh the options, and contact us to learn more about Workforce Go! and AmeriFlex Workforce.