When your payroll service provider doesn't pay your payroll taxes

The IRS's guidance on outsourcing payroll duties is direct: the employer is ultimately responsible for depositing and paying federal employment taxes. Using a payroll service provider (PSP) or a Form 8655 reporting agent doesn't transfer that liability. If the provider took your money and didn't deposit it, the IRS can still assess the tax, penalties and interest against your business — and potentially the TFRP against people who knew.

A Certified Professional Employer Organization that meets IRS certification requirements under IRC section 3511 is treated as the employer for wages it pays to worksite employees, which shifts federal employment tax liability for those wages to the CPEO. Ordinary PEOs and payroll companies aren't certified unless listed on the IRS's public CPEO list — check it before relying on this.

• IRS notices go to the provider's address instead of yours.
• Tax deposit totals in reports don't match EFTPS.
• The provider is late with reports or asks you to wire funds to new accounts.

Enroll in EFTPS using your EIN and check that deposits post each payroll. Make sure your own address is the IRS address of record so you receive notices directly.

1. Pull your business account transcript to see what was deposited.
2. Make current deposits yourself immediately.
3. Report suspected theft to law enforcement and the IRS (Form 3949-A or the IRS contact listed on the PSP guidance page).
4. Request penalty relief — First Time Abate if eligible, or reasonable cause with documentation of the provider's failure. Results vary, and the tax itself usually remains due.
5. If you can't pay the replacement tax, see payroll payment plans.

Civil claims, fidelity bonds, insurance, or receivership/bankruptcy claims against the provider may recover some funds, but they don't stop IRS collection. Take the business assessment to see options for the IRS side while you pursue recovery.