What's different here
- You work under someone else’s EIN, or your own. A payroll service provider or reporting agent files each client’s return under the client’s EIN. A section 3504 agent or a certified PEO files one aggregate return under its own EIN. Liability follows that line.
- Two populations, two verification services. W-2 workers’ SSNs belong with the Social Security Administration’s SSNVS. Contractors and client vendors reported on 1099s go through IRS TIN Matching, and a provider may use it only as the client’s authorized agent.
- The client is usually the payer on the 1099. A provider that prepares and files information returns for a client files them in the client’s name. The IRS says signing for the client does not move the penalty exposure.
- Volume. A provider onboards workers and contractors for many clients at once, so a bad name/TIN pair is a recurring event, not a one-off. Bulk checks before filing are where the volume is handled.
- Classification sits in the middle. A staffing firm places workers with clients, and the employee-or-contractor question has its own wrinkle for technical specialists placed with another business.
Four arrangements and who is liable
The IRS describes four common arrangements in its third party arrangement chart and in section 16 of Pub. 15 (2026). The starting point is the same for all of them: an employer who outsources payroll tax duties generally remains responsible for those duties, including liability for the taxes, with the CPEO as the stated exception.
| Arrangement | Form filed with the IRS | Whose EIN on the employment tax return | Who is liable for the employment taxes |
|---|---|---|---|
| Payroll service provider (PSP) | None required | The client’s (a separate return for each client) | The client alone |
| Reporting agent | Form 8655, Reporting Agent Authorization | The client’s; the agent signs and generally e-files | The client alone |
| Section 3504 agent | Form 2678, Employer/Payer Appointment of Agent | The agent’s (an aggregate return with Schedule R) | Agent and client jointly, for the duties the agent is authorized to perform |
| Certified PEO (CPEO) | Form 8973, CPEO/Customer Reporting Agreement | The CPEO’s (an aggregate return with Schedule R) | Generally the CPEO alone for work site employees; CPEO and customer may both be liable for others |
Payroll service provider. Pub. 15 says a PSP may prepare paychecks, file employment tax returns, prepare Forms W-2 and make deposits, all under the employer’s EIN, and that the employer stays liable for its employment taxes. The chart puts it plainly: “Employer/Client, not the PSP, remains liable for ensuring all tax returns are filed timely and all deposits and payments are made timely.”
Reporting agent. Pub. 15 describes a reporting agent as a type of PSP that the employer authorizes on Form 8655 to sign and file electronically. It also works under the client’s EIN and carries no liability for the client’s taxes. Form 8655 itself says an authorization does not relieve the taxpayer of responsibility for timely returns and deposits. The reporting agents and Form 945 guide covers what Form 8655 does and does not let the agent do.
Section 3504 agent. Section 3504 lets the IRS designate a person who pays an employer’s wages to perform the employer’s acts, while the employer stays subject to the law. The employer requests the appointment on Form 2678, which lists Forms 940 through 945, CT-1 and CT-2. Under an approved Form 2678, Pub. 15 says “the agent and the employer are jointly liable for the employment taxes and related tax duties for which the agent is authorized to perform.” Pub. 15 also describes a payer the IRS designates under section 3504 because of a service agreement in which the payer asserts it is the employer, pays the wages and assumes the tax duties; that payer and the employer are also jointly liable.
Certified PEO. A PEO becomes a CPEO only after IRS certification under section 7705 (IRS CPEO program). Section 3511 then says the CPEO “shall be treated as the employer (and no other person shall be treated as the employer) of any work site employee performing services for any customer of such organization,” but only for remuneration the CPEO remits. The chart adds that “CPEO and customer may both be liable with regard to remuneration the CPEO pays to non-worksite employees.” CPEOs file Form 8973 to tell the IRS a service contract started or ended, and the Form 8973 instructions say this is generally due within 30 days. A PEO that is not certified has no such relief: the Form 941 instructions tell a non-certified PEO filing an aggregate return to check the Other Third Party box.
A staffing firm that hires workers, pays them from its own accounts and files under its own EIN is reporting as an employer, not as anyone’s agent. The four arrangements above describe a provider acting for a client that is the employer. Which one you are depends on the forms on file with the IRS, not on what the contract calls you.
SSNVS for W-2 workers, TIN Matching for the rest
W-2 workers. IRS TIN Matching is not built for employees. Pub. 2108 says the program cannot enroll employers that submit Forms W-2, and that “payers of Form W-2 income, wishing to validate employee SSNs, should contact the Social Security Administration (SSA) for information on their SSNVS” (Pub. 2108, Rev. 11-2024). SSA’s own limits on SSNVS, including when a payroll company may run it for clients and why it may not be used for contractors, are quoted on the entertainment and production payroll page.
Contractors and client vendors. The IRS says “TIN Matching is only for payers and their authorized agents that submit information returns” (IRS, TIN Matching). Pub. 2108 defines the authorized agent as a company contracted to transmit information returns for the payer, including third party service providers, transmitters and service bureaus, and sets one condition that shapes how a provider works: “An authorized agent must perform TIN Matching research under the account established by the payer firm through e-Services.”
So a payroll provider or staffing firm checking a client’s contractors does it under that client’s TIN Matching account, not a pooled account of its own. Each client must itself be eligible: the IRS says a payer must be in the Payer Account File, and payers are added if they filed Forms 1099 within the last 2 years. Interactive sessions take up to 25 name/TIN pairs; bulk files take up to 100,000 and return within 24 hours, per Pub. 2108. The bulk TIN matching walkthrough shows the file format and result codes.
Filing 1099s for clients
The client is the filer. The General Instructions for Certain Information Returns say the filer’s name and TIN must match its other returns, such as Form 945, and “The name of the filer’s paying agent or service bureau must not be used in place of the name of the filer.” Statements to recipients from a service bureau or agent should show the same payer name filed with the IRS (General Instructions, 2025 revision, the current one posted).
The agent may sign, but the client keeps the penalty. A transmitter, service bureau, paying agent or disbursing agent may sign Form 1096 for the payer under a valid agency agreement, adding a caption with the payer’s name. The same section says signing by an authorized agent “does not relieve the payer of the liability for penalties for not filing a correct, complete, and timely Form 1096 and accompanying returns.”
Electronic filing for many clients. In IRIS, the IRS encourages firms that file for multiple issuers to apply once in the transmitter role: “As a transmitter, you may transmit files for as many companies as you need to under one TCC” (Pub. 5717, Rev. 9-2026). The TCC identifies the transmitter; each return still carries the issuer’s own name and TIN.
When the provider pays the contractor. Treas. Reg. 1.6041-1(e)Treas. Reg. 1.6041-1Treasury regulations, Cornell LII decides who is the payer when one business pays on behalf of another. The person making the payment is the payer if it performs management or oversight functions or has a significant economic interest in the payment. Mere administrative work does not count, such as “writing checks at another’s direction.” If two or more parties qualify, the one closest in the chain to the payee reports, unless they agree in writing otherwise. The regulation’s examples turn on facts such as who selects the contractor, negotiates the cost and monitors the work (Treas. Reg. 1.6041-1). A provider that only disburses on client instructions and one that recruits and manages contractors may land on opposite sides of that line.
Backup withholding and Form 945
Nonemployee compensation and other reportable payments may be subject to backup withholding at 24 percent (Instructions for Form 945 (2026)). For payments under sections 6041(a) and 6041A(a) made in 2026, the aggregate threshold for backup withholding rises from $600 to $2,000, per the same instructions and the Instructions for Forms 1099-MISC and 1099-NEC. Withholding is reported on Form 945, and the Form 945 instructions tie the two filings together: “The name and EIN on Form 945 must match the name and EIN on your information returns where federal income tax withholding is reported.”
When a provider withholds on a client’s contractor payments, that rule points to the client’s Form 945 under the client’s EIN, unless another arrangement is in place. Form 2678 lists Form 945 among the returns an agent can be appointed to file. Reg. 1.6041-1(e)(4)Treas. Reg. 1.6041-1Treasury regulations, Cornell LII and the General Instructions also point to Rev. Proc. 84-33, which the regulation describes as an optional method for a paying agent to report and deposit backup withholding for payors. The reporting agents and Form 945 guide covers who owes the tax when a provider misses a deposit, and the backup withholding guide covers when withholding starts and stops.
Worker classification
Whether a worker gets a W-2 or a 1099 is decided under the common-law rules. Pub. 15-A says the facts fall into three categories: behavioral control, financial control and the type of relationship. The IRS adds that there is no set number of factors that makes a worker an employee or a contractor (IRS, Independent contractor or employee).
One rule is written for firms that place workers with other businesses. Pub. 15-A describes a relief provision for a business with a reasonable basis for not treating a worker as an employee, then says “This relief provision doesn’t apply to a technical service specialist you provide” to another business under an arrangement with that business, meaning an engineer, designer, drafter, computer programmer, systems analyst or similarly skilled worker. The common-law rules still decide that specialist’s status (Pub. 15-A (2026)).
A firm or a worker can ask the IRS to decide on Form SS-8. The IRS warns that “it may take at least six months to receive a determination.” The worker classification guide covers what each answer means for your filings, and a worker filed Form SS-8 against your company covers the other side.
Where IRS notices go
Notices about the client’s account go to the client. Pub. 15 says that if an employer’s account has issues, the IRS writes to the employer at the address of record, and the IRS’s outsourcing page says it “strongly suggests that the employer does not change their address of record to that of the payroll service provider” (IRS, Outsourcing payroll duties). A client that wants its provider to see correspondence has a better tool: Form 8655 line 17 asks the IRS to send the reporting agent duplicate notices on the returns and deposits it handled, and lines 18a and 18b let the agent receive information to help respond to notices on the client’s W-2 and 1099 series returns. For 1099 matching notices, the CP2100 and B-Notice cycle runs against the payer named on the return; see the CP2100 and B-Notice guide.
Controls
- Know which arrangement each client is under. Keep the Form 8655, Form 2678 approval or Form 8973 for every client, and the forms each one covers. Liability, the EIN on the return and the TIN Matching account all follow from it.
- Route each worker to the right check. W-2 workers go to SSNVS within SSA’s rules. Contractors and client vendors go to IRS TIN Matching under the client’s account.
- File in the client’s name. Map the payer name and EIN on every 1099 and Form 945 to the client’s IRS records, never to your own firm name.
- Bulk-check before filing. Run each client’s reportable payee file through bulk TIN Matching in the fall, then solicit corrected W-9s while payees are still reachable. The bulk walkthrough shows how.
- Write down who the payer is for any contractor payments you disburse, using the facts Reg. 1.6041-1(e)Treas. Reg. 1.6041-1Treasury regulations, Cornell LII looks at, and agree in writing when more than one party could report.
- Keep the client’s address of record its own, and use Form 8655 lines 17 and 18 if you need copies of notices.
A worked example: the contractor file nobody matched
A payroll provider authorized as reporting agent on Form 8655 files Forms 1099-NEC for 60 clients, each in the client’s name and EIN. It checks W-2 workers through SSNVS but sends contractor files to IRIS without running them through TIN Matching. One client, an engineering firm, has 150 contractors on its 2026 returns. The CP2100 goes to the firm, the payer named on the returns, and lists 42 mismatches. The firm sends B-Notices within 15 business days (see the CP2100 and B-Notice guide).
The 972CG proposes penalties on the 42 returns at $340 each, $14,280, and the same again under section 6722, $28,560 in all. The firm points to its provider. The General Instructions answer that: signing by an authorized agent “does not relieve the payer of the liability for penalties”.
The response that works is the solicitation record under Reg. 301.6724-1: the W-9 requested at onboarding and the B-Notice copies. The provider holds onboarding W-9 requests for 35 of the 42 contractors, so reasonable cause covers those returns. The other 7 were set up from invoices with no W-9 ever requested, so the firm pays 7 returns at $340, $2,380, and the same again under section 6722, $4,760.
The control that would have caught all 42 runs in the fall: bulk TIN Matching of each client’s contractor file, under that client’s own e-Services account, then corrected W-9s while the contractors are still reachable.
Annual maximum at the $340 rate: $4,191,500, or $1,397,000 for a filer with average gross receipts of $5 million or less. Section 6722 charges the same amounts again for the payee statements. Returns due in 2027, Rev. Proc. 2025-32. Full tables: the 972CG estimator and the figures page.
Questions this sector asks
Can we use IRS TIN Matching for the W-2 employees we place?
No. Pub. 2108 says the program cannot enroll employers submitting Forms W-2 and points payers of W-2 income to SSA’s SSNVS. TIN Matching covers name/TIN pairs on 1099s for income subject to backup withholding.
Can we run TIN Matching for all our clients from one account?
Pub. 2108 says an authorized agent must do its matching under the account the payer firm set up through e-Services. Each client needs its own TIN Matching account, and the agent works inside it. Filing returns is different: one IRIS transmitter TCC can cover many issuers.
Whose name goes on the 1099s we file for a client?
The client’s, with the client’s TIN. The General Instructions say the paying agent’s or service bureau’s name must not be used in place of the filer’s name, and the Form 945 name and EIN must match the information returns that report the withholding.
We are a PEO. Are we liable for our clients’ payroll taxes?
It depends on certification. A CPEO is generally the only employer for wages it remits to work site employees, under section 3511. A section 3504 agent with an approved Form 2678 is jointly liable with the client. A payroll service provider or reporting agent is not liable for the client’s employment taxes; the client is.
Who files Form SS-8 when a placed worker’s status is unclear?
Either the business or the worker may file it, and the IRS says a determination may take at least six months. In the meantime, the common-law rules in Pub. 15-A still apply.