California employers can outsource some of their payroll and related tax duties to a third-party payroll service. They can help assure deposit requirements with federal and California state authorities and filing deadlines are met.
Los Angeles County, Santa Barbara County, Ventura County and Orange County California employers who outsource some or all of their payroll responsibilities should consider the following:
For the employer’s protection, employers should ask the payroll service provider if they have a fiduciary bond in place. This could protect the employer in the event of default.
If there are issues with an account, the IRS will send correspondence to the employer at the address of record. The IRS suggests that the employer does not change their address of record to that of the payroll service provider as it may significantly limit the employer’s ability to be informed of tax matters involving their business.
The employer is ultimately responsible for the deposit and payment of federal and California tax liabilities. Even though the third-party is making the deposits, the employer is the responsible party. If the third-party fails to make the federal tax payments, the IRS may assess penalties and interest on the employer’s account. The employer is liable for all taxes, penalties and interest due. The employer may also be held personally liable for certain unpaid federal taxes.
Employers should ensure that their service providers are using EFTPS (Electronic Federal Tax Payment System) so the employer can confirm payments made on their behalf. Everyone should use EFTPS and Treasury regulations require electronic payment for payroll taxes over $200,000 in a calendar year. EFTPS maintains a business’s payment history for 16 months and can be viewed on-line after enrollment. In addition, EFTPS allows employers to make any additional tax payments that their third-party provider is not making on their behalf such as estimated tax payments. The IRS recommends employers verify EFTPS payments as part of their bank account reconciliation process.
For payroll and other tax problems, contact Mitchell A. Port at (310) 559.5259.