Payroll service providers are useful for just about any business owner who wants to ensure that filing deadlines and deposit requirements are met. They certainly can streamline business operations – if the right one is used.
We recommend using a payroll service provider, but not all providers are created equal.
The first thing to remember is that even if you use a payroll service, it is the employer that is ultimately responsible for the payment of income tax withheld and for the withholding of both the employer and employee portions of social security and Medicare taxes.
There have been numerous cases reported to the IRS of payroll service providers collecting payroll taxes from their clients and not paying in the taxes collected. The crooked payroll service providers were able to steal their clients’ tax deposits by changing their clients’ tax addresses with the IRS. Therefore, the business owners were kept in the dark because they never received the tax delinquency notices.
The good news is the IRS has made it more difficult for payroll service providers to change their clients’ addresses without them knowing. Now, the IRS must notify you if your tax address changes.
While this is a step implemented to help prevent theft, there are additional steps we recommend employers take when working with a payroll service provider.
- Hire a bonded payroll service provider and never sign blank tax returns;
- Do not have any IRS notices sent directly to your payroll service bureau; and
- Log into your EFTPS (the IRS’ Electronic Federal Tax Payment System) to confirm your tax deposits were made and that your tax returns were filed.
While these steps cannot guarantee you will not be a victim of payroll tax fraud, they can help prevent it from happening to you.
If you suspect your payroll service provider of improper or fraudulent activities involving the deposit of your federal taxes or the filing of your returns, you can file a complaint using Form 14157, Complaint: Tax Return Preparer.