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Payroll taxes: Once is enough

The recent news about a local payroll tax provider falling behind on remitting client payroll taxes should be a wake-up call to businesses that outsource their payrolls. The good news is that the payroll service's attorney says that all taxes entrusted by the clients for transmission to the government will get to the government, eventually. 

Cases in other states have not had such a happy ending. In 2006, for example, clients of a New York payroll service learned that $3 million of payroll taxes sent to the service had not been remitted, and the money was gone. The firm's clients had to pay their payroll taxes a second time -- first to a thief, and then again to the government. That can be a ruinous expense.

Outsourcing payroll administration is common for good reasons, but most taxpayers don't realize how much risk they are taking when they make that decision. That's why even when you outsource your payroll taxes, you should still monitor the provider. 

Fortunately, you can do so. Taxpayers enrolled in the Electronic Federal Tax Payment System (EFTPS) can go online and check that their payroll taxes are being remitted by the third-party payroll service. It looks like this (details obscured for obvious reasons):


















Is it a hassle? A little, but not compared to paying payroll taxes a second time. And if your payroll service provider says the way they do business doesn't let you check your deposits on EFTPS, you need to ask whether you are taking a risk that you can't afford.

-Joe Kristan



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Naturally I agree that those outsourcing their payroll to a payroll provider or a full service Professional Employment Organizatin (PEO)should monitor the provider.

However, if you are using a PEO like Merit Resources where I work, you cannot go to the Electronic Federal Payment System to check on payroll taxes. The reason is that those payroll taxes are filed unde the Federal Employer Identification Number of the PEO.

If the PEO is accredited with the Employer Services Assurance Corporatoin (www.esacorp.org/AccreditedPEOs), there is actually less risk than if it is left to an internal employee. After all, most companies are not audited quarterly by an external independent CPA firm verifying that they have made tax payments along with WC premium payments, 401k funding and healthcare payments nor do they have an $11M bond as assurance.

As an ESAC accredited PEO, we have our clients, an independent CPA firm, ESAC, and the bond company all monitoring us for on time payments and in the correct amounts.

In other words, choosing the right company with which to do business transfers and eliminates most of the payroll risk as an employer.

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