The top payroll tax deposit and filing service providers, who account for 28 percent of the total employment tax deposits to the federal government, have been working with the Internal Revenue Service and state revenue agencies to resolve fraud issues and streamline processes, speakers said May 16.
Total employment tax deposits account for 69 percent of the annual tax receipts, said Scott Mezistrano, CPP, senior national account manager with the IRS. Reporting agents are responsible for a large part of those deposits as their role is critical in helping to fund government operations, he said.
Reporting agents are defined by the IRS as those authorized by client employers to file forms and deposit employment taxes on their behalf. Form 8655, Reporting Agent Authorization, is used to authorize reporting agents. The form was revised in 2014 and includes instructions and guidance for employers about how the authorization does not transfer the employer’s liability to pay the taxes, Mezistrano said at the annual American Payroll Association Congress in Orlando, Fla.
IRS Revenue Procedure 2012-32 outlines some responsibilities reporting agents have, such as informing clients that they should be performing appropriate due diligence to ensure that taxes were timely deposited by the vendor.
By definition, payroll service providers generally are not tax advisers or tax preparers, but they are tax-return preparers, said Pete Isberg, vice president of government affairs with ADP Inc. and president of the National Payroll Reporting Consortium, a group of about 14 of the largest payroll service providers.
If service providers are not careful in drawing the line between tax advice and tax processing, more liability may be placed on them, Isberg said. And the line can be gray at times.
For example, if a client submitted several tiers of data for an individual as an employee and then changed the status to independent contractor by bringing them on as a contractor, the service provider likely knows this could be a violation of worker-status requirements, Isberg said. A service provider should not advise the client as to the status, but should not completely look the other way when seeing the status change.
Reporting agents are tracking state developments to regulate the industry, Isberg said, noting that a bill in Connecticut (S.B. 1047) sought to fold payroll reporting agents in with tax preparers in their definition, which would have greatly increased the liability of preparers.
States legislators sometimes are trying to define who can be responsible for tax or payroll-related violations, which would make it difficult for states to monitor as well as for service providers to understand and comply, Isberg said.
Personal identification numbers and passwords are necessary for agents to do the reporting and make deposits, said Jenine Hallings, a compliance service manager at the payroll service provider Paychex Inc. Such PINs should expire every six months, she said.
The IRS has a number of email alert subscriptions geared to reporting agents that are available under the subscriptions drop-down menu tab at the top of the IRS website, Hallings said.
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