IRS news release advises how employers that outsource payroll functions can protect themselves from unscrupulous service providers (IRC §3402)

August 19, 2020

While most third-party payroll servicers provide quality service, there are some that leave businesses vulnerable to unpaid bills, the IRS announced, urging employers that outsource payroll functions to take certain steps to protect themselves and explaining the various classifications of providers. A third-party arrangement with a certified professional employer organizations (CPEO), payroll service provider (PSP), or reporting agent (RA) may be right for many employers, the IRS said, explaining that a CPEO, unlike other third parties, in most circumstances is solely liable for paying the customer’s employment taxes, filing returns and making deposits and payments for the taxes reported with regard to wages and other compensation it pays to its employees. The IRS recommended that employers (1) enroll in its Electronic Federal Tax Payment System and make sure a PSP or RA is using it to make tax deposits, and (2) use their own address (not the third party’s) as the address on record for tax correspondence purposes. Each year, a few service providers fail to remit the payroll taxes entrusted to them and close their doors abruptly, and in most instances the employer is still legally responsible for the taxes due just as are those who handle their own payroll duties, the IRS said. [IR-2020-186 (Aug. 19, 2020); FS-2020-12 (August 2020)]