NPRC Studies & Recommendations

Recommendations and Considerations for Electronic Services for Third Party Payroll Service Providers

Due to the increased focus on data security, many taxing authorities are understandably concerned about releasing sensitive data to any potentially unauthorized recipients. Payroll Service Providers (PSPs) must increasingly follow diverse and complicated steps to comply with different state requirements in order to establish their intent to authorize a PSP to view their tax details and resolve tax notices. Viewing employer-level tax details such as account balances, assigned employer tax rates, deposit schedules, historical tax deposits and historical employer-level tax returns are among the lowest-risk tier, especially if third-party users cannot view employee-level information such as SSNs and employee wages reported. Thus, requiring unique and/or difficult processes to establish authority to view employer-level tax details is unnecessary and in fact serves as a barrier to self service and data accuracy for employers that use PSPs. In addition, these complex processes deter the use of state web portals that were originally designed by state tax authorities to help employers and their PSPs resolve tax inquiries efficiently, through self-service, without needing to call the state. This document outlines best practices for states to consider when building new online capabilities for PSPs and other third-party users.