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socrateaser
socrateaser, Lawyer
Category: Tax
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Experience:  Retired (mostly)
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My payroll service paid taxes after a request to leave those

Resolved Question:

My payroll service paid taxes after a request to leave those payments to me. How can they do this without authorization from me?


I made this request last year and no new contract was issued.  They honored this request until now and made this withdrawal from my checking account without requesting permission. 


 

Submitted: 1 year ago.
Category: Tax
Expert:  socrateaser replied 1 year ago.
Hello,

If you are talking about taxes withheld for employees (FICA, FUTA, etc.), then the reason why the payroll service paid, is that federal law makes a person who is responsible to withhold and pay employment taxes personally liable for the failure to do so. The penalty is equal to the amount not withheld and paid (i.e., 100%). IRC 6672.

Consequently, once the payroll service receives the money, it must withhold the tax and pay over to the IRS, or risk the 100% penalty, plus the taxes not remitted, if you do not pay it over.

Obviously, the risk for the payroll service is far greater if it does not remit, than if it returns the money to you, and you don't remit, for one reason or another -- because if you don't, then the IRS can go after you -- and/or the payroll service.

Hope this helps.
Customer: replied 1 year ago.

They are only authorized to pay out of my account the net payroll. They do not withhold any amount other than the net payroll. they do have access to my business account, though.


They have been paying my employees through direct deposit, which requires their access to my account.


 

Expert:  socrateaser replied 1 year ago.
What you are describing doesn't make sense, so I assume I'm missing something.

If the payroll service only pays the net payroll, then where would it get the money with which to pay the taxes, unless it shorts the employees on their wages/salary.

If you mean that the payroll service used your business account to pay the taxes, even though you did not authorize the payroll service to do so, then my answer goes back to the original -- which is that the agreement you made is probably unenforceable. Once the payroll service is authorized to make payroll payments, it also has the obligation to withhold and remit payroll taxes. It cannot simply pay over net payroll to the employees, without risking liability for the TFRP. The payroll service must remit the payroll taxes.

Maybe you and the payroll service misunderstood each other -- or maybe the payroll service agreed to your proposed operational rules, but then thought better of it and paid the taxes, because it realized that it was about to take an unreasonable risk.

I can't be sure of the rationale behind the payment. All I can be sure of is that the payroll service must pay the taxes or risk liability for them not being paid. If I were managing a payroll service, there is no way I would agree to pay only net payroll to employees.

Hope this helps.
socrateaser, Lawyer
Category: Tax
Satisfied Customers: 33482
Experience: Retired (mostly)
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