Many employers hire third-parties to handle payroll and keep track of related tax filing obligations. However, whether or not the payroll service provider is liable for failure to file and/or pay the employment taxes, depends on the nature of the relationship. Most payroll arrangements fall under one of three categories:
1. Standard Payroll Service Provider (PSP)
2. Form 8655 Reporting Agent (RA)
3. Form 2678 Agent
Neither the PSP nor the RA are liable for ensuring that tax returns are filed timely and deposits and payments are made timely. Even though they may be responsible to do so under their agreement with the employer, the employer retains sole responsibility from the IRS’ perspective. But the 2678 Agent is a different creature. It files and pays the taxes of the employer using its own EIN and it shares joint and several liability with its clients (the employers) should penalties be assessed for failure to file or pay. See the IRS’ Third Party Arrangement Chart for a more detailed breakdown of the differences among these three relationship options.