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Outsourcing Payroll

Many employers outsource some or all of their payroll and related tax duties (i.e., withholding, reporting, and paying Social Security, Medicare, and income taxes) to third-party payroll service providers. Third-party payroll service providers can help assure filing deadlines and deposit requirements are met and can greatly streamline business operations. Some of the services they provide are:

  • Administering payroll and employment taxes on behalf of the employer, where the employer provides the funds initially to the third-party.
  • Reporting, collecting and depositing employment taxes with state and federal authorities.

Third Party Arrangements

As part of the outsourcing process, employers may designate or enter into an agreement with a third party in which the third party agrees to take over some or all of the employer’s Federal employment tax withholding, reporting and payment responsibilities and obligations. Depending on the facts and circumstances, and the type of third-party arrangement, an employer who uses a third party to perform Federal employment tax functions on its behalf may remain solely liable for Federal employment taxes, or may become jointly and severally liable for such taxes.

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