If an employee leasing agency fails to withhold taxes, whose responsibility does it become to pay these taxes?

When an employee leasing agency fails to withhold taxes, the responsibility for paying these taxes typically falls to the client firm. This is because the client firm is considered the common law employer of the employees, even though they are technically employed by the leasing agency. In such arrangements, the client firm retains the ultimate responsibility for compliance with tax withholding requirements.

In situations where the leasing agency neglects to withhold the necessary employment taxes, the IRS can pursue the client firm for those taxes. This holds true particularly if the leasing agency does not fulfill its obligations, thus leaving the IRS seeking payment from the client firm as the entity that hired the employees involved. The IRS’s stance underlines the importance of compliance and accountability, regardless of the role that an employee leasing agency plays.

The employee, while affected by the failure to withhold, is not directly responsible for taxes that should have been withheld from their wages. The leasing agency would normally be the entity responsible for withholding these taxes, but in this scenario, their failure triggers the liability on the client firm. The IRS is not responsible for paying the taxes owed; it is the authority that enforces payment.