The IRS can only collect payroll taxes once—either from you or your designated third party. Final regulations, which became effective March 31, 2014, clarify when employee leasing organizations are liable for their clients’ payroll taxes. Warning: Even though the regs heap liability on leasing organizations, they stress that you remain on the hook for your payroll taxes. (79 F.R. 17860, 3-31-14)
Sign on the dotted line. Leasing organizations fall through the payroll liability cracks because they don’t control the payment of wages, aren’t agents who have obtained an approved Form 2678 or aren’t payroll reporting agents, such as payroll service bureaus.
Under the final regs, the IRS may designate a leasing organization as a client’s agent for all payroll purposes, if a service agreement between the parties provides that the leasing organization is the employer or co-employer of employees working for the client; the leasing organization pays wages to those employees; and it assumes responsibility to collect, report and pay, or assumes liability for any payroll taxes, under its own Employer Identification Number. Key: Liability under these regs doesn’t depend on whether you agree to pay the leasing organization gross payroll (i.e., wage and tax amounts) or net payroll (i.e., wages less tax amounts).