![]() ![]() Like a PSP, an RA assumes no liability for its clients' employment tax withholding, reporting, payment, and/or filing duties. The RA also deposits and pays payroll tax liabilities on behalf of the client, using the client's EIN. Then the RA can prepare and electronically file Forms 940 and 941, signing the returns as the RA. Form 8655, Reporting Agent Authorization, must be filed authorizing the RA as the client's agent. Reporting agent (RA): An RA is authorized to perform certain acts on behalf of clients' employees. A PSP assumes no liability for its clients' employment tax withholding, reporting, payment, and/or filing duties.Ģ. Payroll service provider (PSP): A PSP prepares the paychecks for the client prepares Forms 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, and 941, Employer's Quarterly Federal Tax Return, using the client's employer identification number (EIN), and has them signed by the client makes federal tax deposits and/or prepares the Forms W- 2, Wage and Tax Statement, for the client's employees, using the client's EIN. It is important to know these, as slightly different duties and responsibilities are associated with each arrangement.ġ. The IRS has identified three types of third- party arrangements by which a company may outsource its payroll functions. Arrangements the IRS Has Defined for Outsourcing Payroll Duties The bottom line for CPAs who have access to client bank accounts is to guard secure client payroll information and to be cautious if the client asks them to delay tax deposits or if they know the client is having cash flow issues. CPAs should advise clients to pay the government before paying vendors-especially before making draws or distributions to owners. If a CPA is performing accounts payable or bookkeeping functions for a client that is facing financial difficulties, as in Erwin, he or she should not follow the client's instructions to pay other creditors if he or she knows the payroll tax withholdings are not being paid. For online tax deposits made via the Electronic Federal Tax Payment System (EFTPS) or various state websites, the user names and passwords for the client should also be kept secure, and this also applies to the passwords for software used to process the payroll and for direct deposit of paychecks. If the CPA is printing payroll checks, the checks should be kept in a locked, secure cabinet, and only personnel who process payroll should have access to them. ![]() Procedures for CPAs That Process Clients' Payroll Checks and Make Tax DepositsĬPAs processing payroll checks and making tax deposits online should consider access and security issues and be careful if they have access to a financially troubled client's bank account. In Erwin, if the accountants had promptly resigned in writing, they may have avoided such hard scrutiny. Two- party, signed engagement letters can minimize confusion and clarify responsibilities between the client and the CPA, outline fee and payment terms, and emphasize the importance of filing deadlines, logistics, and other key aspects of the client arrangement, such as how the CPA can resign from the engagement. Follow an Engagement LetterĬPAs who perform payroll and sales tax return preparation-which might not be within the purview of the Statements on Standards for Accounting and Review Services (SSARS)-should use engagement letters for those services. This item reviews the relevant requirements, procedures, or other issues for CPAs who offer payroll services. That is a time- consuming and expensive lesson. Nevertheless, the two accountants were each found jointly and severally liable for $325,000 plus penalties and interest. Of course, the owner of the business was held to be a responsible person as well. In it, the court concluded that accountants had significant authority over the finances of the client, so they were "responsible persons" under Sec. The Erwin case is an important reminder that an accountant can be held liable for a client's unpaid employment taxes. They are even scarier if they are assessed against a CPA who provides payroll services to the client. ![]() Payroll tax penalties are scary when they are assessed against a client.
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