Payroll service bureaus are expected to run a flawless operation; especially when it comes to timely payments and the accuracy of tax impound accounts.
In recent months, I’ve spoken with several payroll service bureaus receiving various feedback, from “it’s not a concern” to “this keeps me up at night.” Although the feedback varies, all agree that with this responsibility the best defense is a good offense.
With my knowledge of PTM’s practices and procedures for managing tax impound accounts and the research I’ve done on the liability of third parties responsible for unpaid employment taxes, I’ve put together the following best practices:
- Don’t Co-Mingle Funds: Tax impound funds are always the government’s money and should be held separately from any other funds. If there is ever a question of whether these funds have been used for any other purpose than what they are intended, the account is put on hold and will likely be reviewed.
- Make Accurate and Timely Payments: There are many factors that dictate payment frequency. Know the dates and pay on time. Doing so will not only decrease “red flags” but will also save you the headache of lost time and money.
- Have a Back-Up Plan: Avoid any temptation of borrowing from tax impound accounts to cover other expenses by having “back-up funds” available to cover operating costs in the event that times get tough; such as a Line of Credit (LOC), or an emergency funds account.
- Communicate Requirements & Risk: The government defines a “responsible person” as anyone who has the duty to account for, collect, and pay over the payroll taxes held within the impound accounts. Make sure this person(s) knows who they are and fully understands the requirements and any/all associated risk and responsibility.
- Keep Accurate and Easily Accessible Records: If ever in question, there are specific documents the government will likely request to make a determination, such as articles of incorporation, operating agreements, minute books, payroll records, cancelled checks/ bank records, and tax returns.