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IRS.gov Website
Publication 15
taxmap/pubs/p15-014.htm#en_us_publink100020655

16. Third Party Payer Arrangements(p42)

rule
An employer may outsource some or all of its federal employment tax withholding, reporting and payment obligations. An employer who outsources payroll and related tax duties (that is, withholding, reporting, and paying over social security, Medicare, FUTA, and income taxes) to a third party payer, generally will remain responsible for those duties, including liability for the taxes.
If an employer outsources some or all of its payroll responsibilities, the employer should consider the following information.
The following are common third party payers who an employer may contract with to perform payroll and related tax duties.
taxmap/pubs/p15-014.htm#en_us_publink100020656

Payroll service provider (PSP).(p42)

rule
A PSP helps administer payroll and payroll related tax duties on behalf of the employer. A PSP may prepare paychecks for employees, prepare and file employment tax returns, prepare Form W-2, and make federal tax deposits and other federal tax payments. A PSP performs these functions using the EIN of the employer. A PSP is not liable as either an employer or an agent of the employer for the employer’s employment taxes. If an employer is using a PSP to perform its tax duties, the employer remains liable for its employment tax obligations, including liability for employment taxes.
An employer who uses a PSP should ensure the PSP is using EFTPS to make federal tax deposits on behalf of the employer so the employer can confirm that the payments are being made on its behalf.
taxmap/pubs/p15-014.htm#en_us_publink100020657

Reporting agent.(p42)

rule
A reporting agent is a type of PSP. A reporting agent helps administer payroll and payroll related tax duties on behalf of the employer, including authorization to electronically sign and file forms set forth on Form 8655, Reporting Agent Authorization. An employer uses Form 8655 to authorize a reporting agent to perform functions on behalf of the employer. A reporting agent performs these functions using the EIN of the employer. A reporting agent is not liable as either an employer or an agent of the employer for the employer’s employment taxes. If an employer is using a reporting agent to perform its tax duties, the employer remains liable for its employment obligations, including liability for employment taxes.
A reporting agent must use EFTPS to make federal tax deposits on behalf of an employer. The employer has access to EFTPS to confirm federal tax deposits were made on its behalf.
For more information on reporting agents, see Revenue Procedure 2012-32, 2012-34 I.R.B. 267, at www.irs.gov/irb/2012-34_IRB/ar08.html and Publication 1474, Technical Specifications Guide for Reporting Agent Authorization and Federal Tax Depositors.
taxmap/pubs/p15-014.htm#en_us_publink100020658

Agent with an approved Form 2678.(p42)

rule
An agent with an approved Form 2678 helps administer payroll and related tax duties on behalf of the employer. An agent authorized under section 3504 may pay wages or compensation to some or all of the employees of an employer, prepare and file employment tax returns as set forth on Form 2678, prepare Form W-2, and make federal tax deposits and other federal tax payments. An employer uses Form 2678 to request authorization to appoint an agent to perform functions on behalf of the employer. An agent with an approved Form 2678 is authorized to perform these functions using its own EIN. The agent files a Schedule R (Form 941) to allocate wages and taxes to the employers it represents as an agent.
If an employer is using an agent with an approved Form 2678 to perform its tax duties, the agent and the employer are jointly liable for the employment taxes and related tax duties for which the agent is authorized to perform.
Form 2678 does not apply to FUTA taxes reportable on Form 940 unless the employer is a home care service recipient receiving home care services through a program administered by a federal, state, or local government agency.
For more information on an agent with an approved Form 2678, see Revenue Procedure 2013- 39, 2013-52 I.R.B. 830, at www.irs.gov/irb/2013-52_IRB/ar15.html.
taxmap/pubs/p15-014.htm#en_us_publink100020659

Payer designated under section 3504.(p42)

rule
In certain circumstances, the IRS may designate a third party payer to perform the acts of an employer. The IRS will designate a third party payer on behalf of an employer if the third party has a service agreement with the employer. A service agreement is an agreement between the third party payer and an employer in which the third party payer (1) asserts it is the employer of individuals performing services for the employer; (2) pays wages to the individuals that perform services for the employer; and (3) assumes responsibility to withhold, report, and pay federal employment taxes for the wages it pays to the individuals that perform services for the employer.
A payer designated under section 3504 performs tax duties under the service agreement using its own EIN. If the IRS designates a third party payer under section 3504, the designated payer and the employer are jointly liable for the employment taxes and related tax duties for which the third party payer is designated.
For more information on a payer designated under section 3504, see Regulations section 31.3504-2.