Power Of Attorney for Payroll: An Employer’s Guide To POA

If you decide to outsource payroll to increase your accuracy and efficiency, one of the ways you can gain even more benefits from your partnership is by having the vendor file your payroll taxes for you. And if they do, you’ll likely need to grant power of attorney (POA) or similar authority to enable them to communicate on your behalf about any issues that may arise. So just what’s involved in assigning power of attorney?

At Complete Payroll Solutions, we’ve been providing outsourced payroll services for over 18 years so we understand the rules and requirements when using a third party to manage your payroll tax obligations for you. To help ensure your relationship with your payroll vendor is compliant, here we’ll discuss:

• What is a power of attorney
• How do I give a payroll vendor power of attorney
• What actions can a payroll provider complete with power of attorney
• How long does power of attorney last
• Does power of attorney relieve me of my tax obligations

After reading this article, you’ll know what’s involved in granting power of attorney to your payroll provider so you can make sure you’re meeting your tax obligations compliantly. 

What is Power of Attorney?

Power of attorney is a method for designating a third party to be your authorized representative. In the context of payroll, power of attorney or an equivalent authority grants your provider the right to communicate with the appropriate agency on your behalf on payroll tax issues, if the need arises.

Most payroll vendors will file your payroll taxes on your behalf. Payroll taxes that are withheld from employees include Social Security, Medicare, state and federal income tax, and any additional taxes like Temporary Disability Insurance (TDI). As an employer, you also have some payroll tax obligations. Specifically, you must match the Social Security and Medicare taxes, pay into the appropriate federal and state unemployment funds, and where applicable, pay additional local liabilities.

By giving your payroll provider the ability to communicate with the tax agencies about any questions or concerns, you’ll be free of some of the administrative burdens associated with payroll and ensure the taxes are managed correctly.  

How do I give a Payroll Vendor Power of Attorney?

When you decide to work with a payroll provider, you’ll need to sign the appropriate paperwork to assign them power of attorney or equivalent authority on both a federal and state level.

Federal 

To grant power to your payroll provider to file returns, make deposits and payments for your company, and work with the IRS on your behalf, you’ll need to sign a Form 8655 Reporting Agent Authorization. 

State

Some states prefer or require that you complete a state power of attorney form or complete an online authorization. For example, in Massachusetts, you’d need to complete M-2848 to give a payroll company the right to represent your interests before the Department of Revenue on payroll tax matters. And for unemployment taxes, you would need to authorize them as a third party administrator to conduct business with the Department of Unemployment Assistance online. Without these state authorizations, the payroll company cannot communicate with the respective agency on your behalf to resolve any issues that come up. Here you can find the POA form for your state.

What Actions can a Payroll Provider Complete with Power of Attorney?

POA or other documents that assign a payroll company to act as your agent don’t grant blanket powers. Instead, when you designate your payroll vendor power of attorney or rights via another designation, you can limit the powers so that they can only perform specific actions.

For example, you’ll likely want your payroll vendor to be able to:

• Report, file and pay your payroll taxes
• Request tax information on your behalf such as the proper tax rates
• Receive duplicate copies for tax information
• Respond to a tax agency notice

While each form may vary, you can often define the scope of the powers you grant on the forms or online authorizations. 

How Long Does Power of Attorney Last?

Power of attorney or other agency designation can be written to take effect immediately or at some time in the future, and stays in effect until you end it. There are 3 ways to limit the duration:

1. You may indicate the years(s) for which the authority applies. For example, in Maine, the authorization form allows you to state the tax year or period for which your designated agent is authorized to act on your behalf.
2. You can complete and file a new form that names someone else as having the authority.
3. You can write REVOKE on the first page of your form, sign and date it, then mail it to the IRS or state tax agency, or draft a revocation document that states the power is no longer valid.

Does Power of Attorney Relieve me of my Tax Obligations?

When you give your payroll company power of attorney or equivalent rights, you aren’t relieved of your obligations. The one exception, in most cases, is if you use a Professional Employer Organization (PEO) for outsourced payroll since, in those cases, the PEO is the employer of record.

However, even though you are still ultimately responsible for your payroll taxes, your vendor will take responsibility for any penalties that you may incur because of their mistakes. Just be sure to spell this out in your agreement.

For example, if the vendor doesn’t make your tax deposits on time or deposits the wrong amount, they would be responsible for the penalty and any interest.

Even if your payroll company is filing your payroll taxes on your behalf, you should still create an account with all tax agencies to monitor your payment history. For federal payments, you can do this via the Electronic Federal Tax Payment System (EFTPS). For your state, you’ll likely create an account when you apply for your respective identification.

How to Ensure Payroll Tax Compliance

By granting power of attorney or reporting agent designation to your payroll company, you can free yourself up from having to correctly calculate and submit payroll taxes to avoid legal consequences as well as managing any complex tax matters that may arise.

If you decide to outsource payroll, the key is to find the right payroll vendor to delegate those responsibilities to. As you conduct your search for the best partner for your business, Complete Payroll Solutions can be a good fit if you want a vendor who can:

• Calculate, withhold, report, and file your state and federal payroll taxes
• Complete other tax-related activities on your behalf such as registering for a federal or state employer identification number (EIN), filing new employee reports with your state, and issuing W-2s at the end of the year to your employees
• Provide expertise on payroll tax matters from a dedicated professional

If it sounds like we could be an ideal provider for your company, read our next article on our payroll packages to see what’s included in addition to tax filings with each of our most popular offerings.