Tips on using payroll services
May 25th, 2009
· Require in the contract that your tax deposits be maintained in accounts identified as “Trust Funds” for your business taxes, and frequently request—from the IRS and state tax agencies—transcripts of your tax accounts.
Example: In one case, when the payroll service embezzled a company’s withheld taxes designated for deposit with the IRS, the IRS first sent deficiency notices. When the company reported to the IRS that the payroll service had embezzled its employment-tax funds, the IRS said this was irrelevant and took the company to court. The court ruled that the company was responsible for timely filing and payment of taxes. Relying on an agent, even one that commits criminal acts, does not relieve a taxpayer of its ultimate responsibility for filing returns and paying taxes. [Pediatric Affiliates, P.A. v. United States; No. 3:05-cv-03108; Feb. 23, 2006, D.C.N.J.]
· Each year end, before December 31, consider asking for an adjustment run before you close out and produce your W-2s. Verify and, if needed, correct:
- relocation expense reimbursements;
- manual or voided paychecks that have not been put in the system;
- personal use of company vehicles;
- company-paid educational assistance; and
- other taxable items paid via accounts payable.
· If you receive extra packages from your payroll service during a payroll period, it is a sign of possible payroll fraud within your company.
· Always check your payroll service’s work (just as you check your tax return when it is done by someone else) to make sure not only that it is accurate, but that it is in compliance with the latest IRS changes in employment taxes and reporting requirements.