Who this is for
- Employers moving federal payroll to a new payroll provider during the year or a quarter
- Owners whose payroll covers themselves, such as an S corporation owner paid a salary
Not covered here
- Ranking or recommending payroll providers
- A provider that missed deposits or returns, and penalty notices
- State registration and state forms
- Entering payroll in the books line by line
Can I switch payroll providers or companies in the middle of a quarter or the year?
Yes. No switch date is mandatory, and the employer, not the provider, generally stays liable for payroll tax (Publication 15, section 16). The date decides how much history must move, because returns follow the calendar quarter, deposits follow pay dates and Forms W-2 follow the calendar year.
| Switch date | What moves to the new provider |
|---|---|
| First payroll of a calendar year | No year-to-date totals, because wage limits and thresholds start over. Employee setup, state accounts and deposit access still move, and the prior year's W-2s and Form 940 still need a filer. |
| First day of a quarter | Year-to-date totals for each employee. The old provider's last quarter is complete; the new provider starts a new Form 941. |
| Middle of a quarter | Year-to-date totals plus that quarter's wages, tax liability by pay date and deposits so far. One Form 941 still covers the whole quarter, so one party must report all of it. |
The cleanest dates are the first payroll of a calendar year or the first day of a quarter. If the IRS has told you in writing to file Form 944, one annual return covers the year and the quarter rows do not apply (Publication 15).
Run each pay date in one system only. Federal tax liability follows the date wages are paid (Publication 15), and each Form W-2 reports wages paid in the calendar year (W-2 instructions).
A switch is not simple when it falls mid-quarter, the old provider will not release records, year-to-date totals do not match returns already filed, or employees work in more than one state. Gather before the date: each employee's year-to-date register, filed returns, deposit history, withholding forms, state account numbers and your EFTPS login.
Who is responsible for payroll taxes while I switch providers?
Generally you are. A payroll service provider or reporting agent (authorized on Form 8655 to file returns and make deposits for you) works under your employer identification number and is not liable as the employer or the employer's agent for your employment taxes (Publication 15, section 16). A certified professional employer organization is generally solely liable for wages it pays to worksite employees, but you and it can both be liable for wages it pays to other workers, and an agent on Form 2678 shares liability with you (IRS third party arrangement chart).
The liability can be personal. A sole proprietor is personally liable for employment tax, and general partners usually are for partnership debts (IRM 5.17.7). In any business, a responsible person who willfully fails to pay over withheld tax can owe 100% of it (26 U.S.C. 6672), and paying other creditors when the business cannot pay the tax is an indication of willfulness (IRS). The IRS generally has 3 years from April 15 of the next year, or the filing date if later, to assess it, with no limit while the return is unfiled (IRM 5.7.3). Who counts is in the trust fund recovery penalty.
A switch opens three gaps:
- A deposit nobody makes. Deposits for the last old-provider pay dates can fall due after its service ends.
- A return nobody files. Each provider can assume the other files the shared quarter.
- Notices nobody sees. The IRS writes to the address of record and strongly suggests the employer keep its own address there, not the provider's (IRS: outsourcing payroll duties).
Keep the old provider's service active until its last deposit and return are confirmed. If the old provider took the money and did not pay, see what to do when a payroll provider did not deposit your taxes.
What should I compare in a new payroll provider besides price and support?
Compare who files, who deposits and whose name is on each account. Price and support do not change that you owe the tax. Ask:
- Does it file and deposit under your employer ID number, through EFTPS? Then you can see each payment (Publication 15).
- If it is a reporting agent, does it tell you in writing that you stay responsible? A reporting agent must say so when the agreement starts and at least quarterly after, and recommend that you enroll in EFTPS (Form 8655 instructions).
- Will it load year-to-date totals by employee and by quarter, and who files the switch quarter's returns, the Form 940, the W-2s and the state returns?
- Is it a certified professional employer organization, or an agent on Form 2678? Each uses its own EIN, so liability and W-2s differ (Publication 15, section 16). How the arrangements differ is in a payroll provider that did not deposit your taxes.
For first-time setup, see setting up payroll.
What do I collect from the old payroll provider before I leave?
Collect payroll records before the old account closes. They are the employer's records, and the IRS expects you to keep employment tax records for at least four years (Publication 15). What to keep and how is in payroll records retention.
| Collect | Why |
|---|---|
| Year-to-date register for each employee, through the last pay date | Opening totals: gross wages, federal and state withholding, Social Security and Medicare wages and tax, pre-tax deductions, and cash tips and qualified overtime if any |
| The switch quarter's wages and tax liability by pay date, and any FUTA liability not yet deposited | The liability record on a Form 941 that two providers share. FUTA liability of $500 or less carries into the next quarter and counts toward the next deposit test (IRS: Topic 759). |
| Filed Forms 941 and 940, with confirmation numbers | Proof of what was filed, and a base for checking the first new return |
| Deposit history with EFT trace numbers | Proof that each deposit reached the IRS |
| Employee setup: Forms W-4, state withholding forms, pay rates, deductions, pay schedule | A valid Form W-4 generally stays in effect until the employee gives a new one, so the new provider needs each current form (Publication 15). |
| Retirement deferrals, garnishments and other deductions paid to an outside party, with running totals | Starting at zero can miss a deferral limit or an amount still owed to the payee |
| State account numbers, assigned unemployment rate, state returns filed | State setup at the new provider |
| Service agreement and any authority the old provider holds | To end each authority in writing after its last filing is done |
If the old provider will not release records, rebuild the opening totals from each employee's last pay stub, your filed Forms 941 and 940, your EFTPS deposit history and the IRS transcripts of your filed returns and payments (IRS: business transcripts). If the rebuilt wages and tax do not tie to the filed Forms 941, do not load them yet; reconcile the books and returns first.
Which year-to-date figures does the new payroll provider need, and what goes wrong if it starts at zero?
The new provider needs each employee's totals from January 1 through the last old-provider pay date. When it files under your EIN, wage limits and thresholds count all wages you paid in the year, whoever ran the payroll. If you are leaving a certified professional employer organization, you are treated as its successor employer for the Social Security and FUTA wage bases, so the wages it paid count too (26 U.S.C. 3511(b)).
| Figure | The rule | If the new provider starts at zero |
|---|---|---|
| Social Security wages | The employee share stops when wages reach $184,500; the employer share stops at the same limit. The rate is 6.2% each (Publication 15). | Tax keeps being collected above the limit |
| Medicare wages | No wage limit. 0.9% Additional Medicare Tax withholding begins in the pay period wages pass $200,000 (W-2 instructions). | Additional Medicare withholding starts late |
| Federal unemployment (FUTA) wages | 6.0% on the first $7,000 paid to each employee in the year; a full state credit lowers it to 0.6%, but not in a credit reduction state, where the federal tax is higher (IRS: Topic 759). | The new provider charges FUTA again on the first $7,000 of its payrolls |
| State unemployment wages | Each state sets its own wage base and rates (DOL); the state base can differ from the federal one. | The new provider charges state tax again, or on the wrong base |
| Income tax withheld and pre-tax deferrals | Income tax withheld is reported on Form W-2 and Form 941; deferrals are left out of box 1 and shown in box 12 (W-2 instructions) | The W-2 shows only the months since the switch and does not tie to the Forms 941 |
| Cash tips and qualified overtime, if any | Form W-2 box 12 code TP shows cash tips reported to you, with the tipped occupation code in box 14b. Code TT shows qualified overtime, only the premium part, such as the "half" in time-and-a-half (W-2 instructions) | The W-2 shows only the months since the switch |
If the new provider will file a quarter that began before the switch, it also needs that quarter's wages and tax liability by pay date, not only the year-to-date total. Check the opening totals against the old provider's final register before the first payroll runs. Tax already collected wrongly is corrected as in fixing a payroll mistake.
How do Form 941 and tax deposits work when two providers share one quarter?
When the providers file under your EIN, the business files one Form 941 for the quarter, covering every wage paid in it, whichever provider ran the payroll. Publication 15 says not to file more than one return per return period or report more than one quarter on a Form 941 (Publication 15). Each Form 941 is due the last day of the first month after each quarter, so the old provider's last quarter can still be due after the switch date.
- The deposit schedule is yours. Give the new provider the monthly or semiweekly schedule you already use; how it is set is in setting up payroll.
- The liability record must cover both providers. Unless line 12 is under $2,500 for this quarter or the last and no next-day deposit applied, total taxes on line 12 must equal the total liability on line 16 (monthly depositor) or on Schedule B (semiweekly depositor). Line 13, total deposits, counts every deposit, by either provider. If the liability record leaves out the old provider's pay dates, line 12 will not match and deposits may not be counted as timely (Form 941 instructions).
- Form 940 is one annual return, due January 31 after the wage year. The first $7,000 paid to each employee counts across both providers.
- Form 8655 works by period. A reporting agent's authority to file begins with the quarter named for a quarterly return or the year named for an annual one such as Form 940, and its authority to deposit begins with a month (Form 8655 instructions).
Federal rules put the Form 941 on the employer. They do not say which provider files a shared quarter, or how to split a month's deposits between two providers. Whoever files needs the other provider's wages and liability by pay date, so pick the party that can get those records most reliably. Settle in writing, before the switch date: who files the switch quarter's Form 941; which pay dates each provider deposits for, including the last ones before the switch; how the old provider hands over wages and liability by pay date; and who files the W-2s and Form 940. For missed deposits or returns, see behind on payroll taxes.
Who issues the W-2s after a mid-year switch?
Plan for one Form W-2 per employee with full-year wages, and settle in writing, before the switch date, which provider issues it. The employer must furnish each Form W-2 and file Forms W-2 and W-3, even when a provider does it. The deadline for both is February 1, 2027 (W-2 instructions).
Forms W-2 report wages paid in the calendar year, so an employee's forms together must show the full year, not only the months since the switch. The instructions allow a second Form W-2 for an employee, for example for extra box 12 codes or other compensation, showing only items not on the first form, and say not to report the same tax data on more than one Copy A. They do not describe splitting one year's wages across two forms. If both providers will issue forms, agree before either files how they will be checked together against the Forms 941, so nothing is reported twice or left out. The provider that issues the Forms W-2 needs every pay date of the year, by running them or from the year-to-date load, and its Form W-3 should tie to the Forms 941 (see the checks below).
The name and EIN on Forms W-2 and W-3 should be the same as on the Forms 941 filed for the business, and another EIN used on a Form 941 this year goes in box h of Form W-3. When a certified professional employer organization or an agent on Form 2678 also paid wages to the employee under its own EIN, each files a Form 941 and issues Forms W-2 for the wages it paid (Publication 15, section 16; IRS third party arrangement chart).
What do I change with the IRS when I change payroll providers?
Four things: the reporting agent authorization, your EFTPS access, the address of record and your view of the account.
| Item | What to do |
|---|---|
| Reporting agent authorization (Form 8655) | If the new provider is a reporting agent, it files a new Form 8655, which ends the old agent's authority from the period it names; on line 15 a quarterly return uses YYYY/MM, with MM the last month of the quarter, and an annual return uses YYYY; line 16 deposits use YYYY/MM. Without a new form, the old authority stays in effect until revoked. The old agent keeps its earlier disclosure authority unless you revoke it: send a copy of the old form re-signed and marked REVOKE, or, with no copy, a signed statement naming the agent. A revocation also ends its authority to act or receive information for earlier periods, so send it only after the old agent's last return, deposit and notice are done (Form 8655 instructions). |
| Other authority the old provider holds | A Form 8655 does not end a power of attorney (Form 2848) or tax information authorization (Form 8821) already in effect (Form 8655). End those separately. |
| EFTPS | Enroll under your own EIN, or activate the Inquiry PIN the old provider's enrollment created, which lets you monitor its deposits (Publication 15). A first enrollment is validated with the IRS, and the PIN comes by mail in five to seven business days at your address of record (EFTPS), so enroll before the switch. EFTPS keeps 16 months of payment history (IRS). |
| Address of record | Keep your own. If it was changed to the old provider's, correct it on Form 8822-B. |
| Business tax account | Shows payments, notices and transcripts. It is not yet available to an LLC that files as a sole proprietor (IRS). |
What happens to my state withholding and unemployment accounts?
The accounts are generally your business's, so a switch changes who reports and pays, not who owes. Each state runs its own unemployment program and tax (DOL) and sets its own wage base and rates (DOL).
Give the new provider each state's withholding and unemployment account numbers, your assigned unemployment rate, year-to-date state taxable wages and the filing frequency. Carry state taxable wages separately from FUTA wages, because the bases can differ. Check each state agency's rules for authorizing a payroll agent; they differ by state and this page does not cover them.
Paying state tax in full, by the Form 940 due date and on the same wages, is a condition of the maximum credit against FUTA (IRS: Topic 759), so keep state payments on time and on the right wages through the switch. For California, see California payroll taxes and EDD setup. For employees in other states, see employees in another state.
How do I check that the switch worked?
Compare the new provider's reports with the old ones and with the IRS account, at four points.
| When | Check |
|---|---|
| After the first new payroll | Each employee's year-to-date in the new register equals the old final register plus the new payroll |
| After each deposit | EFTPS or your business tax account shows each deposit under your EIN, in the right amount and for the right period, with an EFT trace number. One deposit can cover several pay dates, and together the deposits must cover every pay date's liability (Publication 15). |
| Before the switch quarter's Form 941 is filed | Line 12 against line 13, and the liability record total against line 12 (Form 941 instructions) |
| Before the Forms W-2 are filed | Form W-3 against the four Forms 941: income tax withheld, Social Security and Medicare wages, and tax. Social Security and Medicare tax on the Forms 941 is generally about twice the Form W-3 figure, because it includes the employer share (Publication 15). |
Also check that no employee's Social Security wages exceed $184,500 and that each employee's Form W-2, or Forms W-2 together, show each year-to-date total once. Keep your reconciliation, with the reason for any difference, in case the IRS or the Social Security Administration asks. After filing, the account transcript shows the payments and return posted, and the IRS compares Forms 941 with W-2 data sent to the Social Security Administration (IRS: business transcripts).
How do I carry the switch into my books without doubling a quarter?
Record each pay date once, from the provider that ran it. Treat the new provider's year-to-date load as opening totals, not as payroll runs.
- Book every old-provider run from its register, through its last pay date.
- Book every new-provider run from its register, from its first pay date.
- If the earlier months are already booked, do not book the year-to-date figures again: a journal entry built from a year-to-date report repeats them. If they were never booked, the old provider's registers are the source for them.
- Point any feed from the provider into the books at the new provider from the switch date.
- At quarter end, tie the payroll liability accounts to the Form 941 and the EFTPS payments. A balance equal to one provider's quarter can mean a quarter was entered twice or missed.
The entries are in payroll journal entries. Balances that will not clear are in payroll liabilities that won't clear.
Example
These examples are illustrative; all figures are in US dollars.
Switch on the first day of a quarter
A bakery with six employees switches on July 1. The new provider loads each employee's January to June wages, withholding and Social Security, Medicare and FUTA wages. The old provider still files the second-quarter Form 941, due July 31. The third-quarter Form 941 covers only new-provider payrolls, and each W-2 shows the full year because the new provider started from the old totals.
Switch in the middle of a quarter
An S corporation owner has been paid $70,000 of salary by August 15, the switch date, and the old provider's figures show the $7,000 FUTA wage base already reached. The third quarter began July 1, so its Form 941 must include the old provider's July and early August payrolls. The two providers agree that the new one files it and the old one hands over liability by pay date. Starting the owner at zero would make the W-2 show only wages since August 15, with totals that do not match the Forms 941. It would also have the new provider charge FUTA again on the first $7,000, about $42 at the 0.6% net rate (more in a credit reduction state).
The last deposit looks late
A shop owner is leaving a provider whose last deposit looks late. She enrolls in EFTPS in her own name before the switch date, and the PIN arrives by mail in five to seven business days. Before closing the old account she checks the payment history against the deposits her schedule required. Every deposit is there, but the last posted two days after its due date. She records the date and amount and keeps the old account open until the final return is filed.
Different for you?
- You are leaving mid-quarter or mid-month, the old provider missed filings or will not release records, or year-to-date totals will not match the W-2s or the new provider's first register: who files the shared quarter, how the year-to-date load is built and how payroll lands in your books without doubling a quarter all turn on the old provider's records. See bookkeeping help.
- You already switched and the payroll liability accounts in your books do not match the Forms 941 or the EFTPS payments, or a quarter looks entered twice or missed: the fix starts from both providers' registers and the IRS account. See bookkeeping help and payroll liabilities that won't clear.
- The old provider took the money and did not deposit it, or the arrangement is a professional employer organization or an agent on Form 2678: see a payroll provider that did not deposit your taxes, which also compares the arrangements.
- You missed deposits or returns, got a penalty notice, or an IRS officer wants to meet about unpaid payroll tax: see behind on payroll taxes and the trust fund recovery penalty.
- A return or W-2 already filed shows wrong amounts: see fixing a payroll mistake.
- You are moving from a provider to running payroll yourself, or the reverse: see running payroll yourself.
- The payroll covers an S corporation owner's salary: see S corporation owner salary.
- Employees work in California or several states: see California payroll taxes and EDD setup and employees in another state.
Figures on this page
| Figure | Value | Source |
|---|---|---|
| Trust fund recovery penalty as a share of unpaid withheld tax Applies to the unpaid trust fund tax of a responsible person who acted willfully under IRC section 6672 | 100% | IRS: Publication 15, Employer's Tax Guide Checked |
| General trust fund recovery penalty assessment period From the succeeding April 15 for timely employment tax returns, or actual later filing; exceptions apply | 3 years | IRS: Trust fund recovery penalty assessment period Checked |
| Deemed annual employment-tax return filing date for assessment In the succeeding calendar year; actual later return filing starts the assessment period later; exceptions can suspend or eliminate the limit | April 15 | IRS: Trust fund recovery penalty assessment rules Checked |
| US employment tax record retention Minimum, counted from the date the tax becomes due or is paid, whichever is later | Four years | IRS: Publication 583, Starting a Business and Keeping Records Checked |
| Federal unemployment quarterly deposit trigger Deposit once accumulated quarterly FUTA liability, including carried amounts, exceeds this amount | $500 Tax year 2026 | IRS: Publication 15, Employer's Tax Guide Checked |
| Social Security wage base Maximum combined wages and net earnings from self-employment subject to the Social Security part of the tax | $184,500 Tax year 2026 | IRS: Form 1040-ES (2026) Checked |
| Social Security tax rate for each of employee and employer Each side pays this rate on covered wages up to the annual wage base | 6.2% Tax year 2026 | IRS: Publication 15, Employer's Tax Guide Checked |
| Additional Medicare withholding rate Employee-only tax on wages above the employer's annual withholding trigger | 0.9% Tax year 2026 | IRS: Publication 15, Employer's Tax Guide Checked |
| Additional Medicare employer withholding trigger Wages this employer pays an employee in a calendar year | $200,000 Tax year 2026 | IRS: Publication 15, Employer's Tax Guide Checked |
| Federal unemployment tax rate before state credit Rate before any state unemployment credit | 6.0% Tax year 2026 | IRS: Publication 15, Employer's Tax Guide Checked |
| Federal unemployment taxable wage base per employee First wages paid to each employee during the calendar year | $7,000 Tax year 2026 | IRS: Publication 15, Employer's Tax Guide Checked |
| Federal unemployment tax rate after the maximum state unemployment credit 6.0% FUTA rate less the maximum 5.4% credit for state unemployment tax paid in full and on time, outside credit reduction states | 0.6% Tax year 2026 | IRS: Publication 15, Employer's Tax Guide (2026) Checked |
| Form 941 quarterly filing deadline Normally April 30, July 31, October 31 and January 31; next-business-day and timely-deposit extensions may apply | The last day of the first month after each quarter | IRS: Instructions for Form 941 Checked |
| Form 941 small-liability payment-with-return limit Current or prior quarter tax liability below this amount, with no current-quarter next-day deposit obligation | $2,500 Tax year 2026 | IRS: Publication 15, Employer's Tax Guide Checked |
| Form 940 annual filing deadline Next-business-day and timely-deposit extensions may apply | January 31 after the wage year | IRS: Form 940 filing and deposit requirements Checked |
| 2026 Forms W-2 and W-3 filing and furnishing deadline File 2026 Forms W-2 and W-3 with the SSA and furnish W-2 to employees by this date | February 1, 2027 Tax year 2026 | IRS: General Instructions for Forms W-2 and W-3 (2026) Checked |
Primary sources
- IRS: Publication 15 (2026), Employer's Tax Guide
- IRS: Outsourcing payroll duties
- IRS: Outsourcing payroll and third-party payers
- IRS: Third party arrangement chart
- IRS: About Form 8655, Reporting Agent Authorization
- IRS: Form 8655 and instructions (Rev. January 2024)
- IRS: Instructions for Form 941
- IRS: General Instructions for Forms W-2 and W-3
- IRS: Topic no. 759, Form 940 and FUTA
- U.S. Code: 26 U.S.C. 3511, Certified professional employer organizations
- U.S. Code: 26 U.S.C. 6672, Failure to collect and pay over tax
- IRS: Employment taxes and the Trust Fund Recovery Penalty
- IRS: Internal Revenue Manual 5.7.3, TFRP responsibility, willfulness and assessment period
- IRS: Internal Revenue Manual 5.17.7, Liability of other persons
- IRS: About Form 8822-B, Change of Address or Responsible Party - Business
- IRS: Business tax account
- IRS: Get a business tax transcript
- EFTPS, U.S. Department of the Treasury
- U.S. Department of Labor: State Unemployment Insurance Benefits
- U.S. Department of Labor: State law information
About this guide
Published by Cloud Accounting under standing professional approval. This version has no separately recorded personal review. It explains general rules for the tax year shown. It is not advice for your situation.
Changes
- : First published.