The IRS notified its field agents that third-party firms that handle payroll and employment tax compliance for employers can be liable for penalties for unpaid and delinquent taxes. Payroll firms and employee leasing companies that willfully fail to remit clients' taxes can be assessed the 100% penalty, as can responsible persons of those firms. thsi is not a change in policy, according to the IRS. Observers say it is likely the agnecy's response to a recent incident when a payroll tax firm embezzled tax payments received from clients.
The employer still is ultimately liable for the taxes and penalties. A payroll firm is unlikely to have any liability when the employer gives it specific diretions about the amount of taxes to pay and when to pay them. A payroll firm can, however, be liable when it has discretion over payment.s In either case, the employer and its responsible persons ultimately are liable for unpaid taxes and penalties. Also, consider taking the following steps:
- To protect your firm, and yourself, from payroll service mistakes or fraud, use a service that has a fiduciary bond.
- Make absolutely sure the IRS sends to you, or copies you, on all payroll tax and payroll tax return correspondence.
- Require the service to deposit taxes electronically and then check your IRS tax account through EFTPS and your bank account each time to make sure that payments were made timely and in full.
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