Signing up with a payroll service is a great way to facilitate the sometimes complicated payroll process with a minimum exposure to IRS and state penalties. Payroll companies are able to track your payroll in real-time, help with any audits, and provide accurate and up to date records to you and your accountant as needed.
Unfortunately, there are some pitfalls to be aware of when working with a national payroll service. They are accommodating and helpful to their clients and they will work to help you put together the information that they need. However, when you cancel a payroll subscription they will end the relationship just as quickly as you do. Sometimes this can result in gaps in service.
We have had more than one occasion where someone has canceled their payroll service in the middle of a quarter and it has resulted in significant penalties for failure to file that quarter’s returns or make appropriate tax payments. In some instances, a payroll service will take money that they have withdrawn from your account for tax payments and apply them to outstanding service fees. Even if you wait until the end of the quarter to cancel a payroll subscription, you are still responsible to file W-2s and Form 940 at the end of the year. You may have additional state reporting requirements as well.
If you have canceled a payroll subscription this year and ceased payroll operations, we recommend contacting your payroll company and finding out exactly what they have filed and paid and what is still outstanding. At Chamberlain & Associates, PA, we have worked with several businesses experiencing this issue. We have excellent relationships with representatives from all the major national payroll services and can work with them to get the information necessary to make sure that all of your payroll requirements and year end filings are handled. Even if you only had one pay period at the beginning of the year before canceling, the IRS can impose significant penalties for failing to timely file. It is better to handle this now than to wait until the notices start coming.