BTerrell Group Blog

An Overview of Third Party Payer Arrangements

Posted by Brian Terrell on Wed, Jan 28, 2015

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

Reporting agent:
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.

Tags: 1099, Workforce Go!, third party payer arrangements,

Your Most Common Questions for 1099 Reporting

Posted by Michelle Tanner on Fri, Jan 09, 2015

1099 reporting only happens once a year, so it is no surprise that we all forget the process to get these forms printed and distributed in a timely manner. Here's a quick link to our post from last year on Common Questions Re: Genertaing 1099-MISC Forms from Sage 300 ERP.


Tags: 1099

IRS Stepping Up 1099 Compliance Enforcement

Posted by Brian Terrell on Tue, Aug 27, 2013

Form 1099If anecdotal evidence counts for anything, the IRS may be stepping up their efforts at Form 1099 annual filing compliance. Recently, we heard of one mid-sized company that was fined around $25,000 for not completing the Recipient's Name correctly in an electronically filed batch.  $25,000 is a lot of money, especially when it relates to a batch of 40 or so records.  Do the math...that's $625 per form. Perversely, it seems that maybe they were just trying to ensure that the fine was greater than the annual filing baseline of $600 in service payments (and a host of other types of payments).  Actually, they were following a formula that mandates a per form penalty for various offenses starting at $30 per form up to $250 per form. The maximum penalty starts at about $500,000 for small businesses, but there is no maximum under certain conditions. Payer beware!

In another case, a Payer filed forms electronically and in perfect condition, but 16 days late.  For that, the penalty was the minimum of $30 for the 11 forms, or $330.  As this penalty was assessed on a per form basis, one is tempted to consider the disincentive of filing more forms. Actually, the disincentive properly applies to filing incorrect or late forms, but I don't remember these types of penalties being consistently applied in the past.  Worse, sequestration has taken its toll on the IRS, and they do not have sufficient manpower or automation to promptly fine a small business.  So, in this second case of the $330 fine, the fine was assessed in August 2013 for forms filed 16 days late in April 2012.  Do the math again...that's 16 months from offense to fine, which significantly diminishes the educational effect of compliance enforcement.  In other words, if I am doing it wrong then I may continue to do it wrong until I am notified that I am doing it wrong.  How many cycles must I fail until I learn of my failure?

What's the answer?  

Even though both Sage and Intacct have everything one needs to accurately file a Form 1099 (paper or electronic), I think it is time for small businesses to outsource IRS compliance issues.  Small businesses must ask others to complete their tax and information returns.  Tax compliance services and CPAs understand and meet the requirements in a ridiculously inexpensive way.  For example, Aatrix, a BTerrell Group partner, will file my 1099s and W-2s for less than $2 per form.  I still need Sage and Intacct to calculate the amounts, but I can outsource the risk of filing incorrectly or late and gain the peace of mind in knowing that if something goes wrong, I have someone in my corner.  

As Congress requires the IRS to do more and more under the Affordable Care Act with less and less resources, it makes sense to get help on tax compliance.  I can still do my own payroll and I can still write my own vendor checks, but when it comes to complying with quarterly and annual reporting requirements to the IRS, I think I am better served by letting my CPA or some other service do the compliance work for me!

Interested in learning more about eFiling with Aatrix? Call BTerrell Group at 866.647.2611 to receive an Aatrix quote specific to your business.

Tags: 1099, 1099 reporting, 1099 compliance, aatrix