Payroll Service Companies
A payroll service company is a person or organization defined in Arizona Revised Statute (A.R.S.) with custody or control over funds to pay a client’s withheld taxes and file returns with the Arizona Department of Revenue (ADOR). The client is another employer for whom the payroll service company provides payroll services for a fee, as defined here.
Payroll Service Registration Requirements
To register as a payroll service company, please visit ADOR’s Online Payroll Service Company portal.
Click Register and follow the instructions.
The types of registration available include the following:
- Web Service – Preparer: payroll service companies that use a third-party software vendor to transmit returns, payments and client lists.
- Web Service – Transmitter: third party software vendors who transmit returns, payments and client lists directly to ADOR.
- Web Upload: payroll service companies that will upload returns, payments and client lists via a .csv file.
Businesses currently registered to file and pay client taxes on AZTaxes.gov still have to register as a payroll service company. This registration is in addition to any other business registration required by ADOR. However, companies may continue to file and pay electronically through an existing login on AZTaxes.gov and will not be subject to penalty. Nonetheless, companies will still need to send ADOR a client list using Web Upload or a third-party software vendor.
In addition, businesses registered for Arizona withholding have to register again as a payroll service company; however, only if the business meets the definition of a payroll service company for purposes of the new statute.
On the other hand, businesses that prepare returns for clients who, in turn, file and pay their own returns, do not have to register as a payroll service company as defined by statute, nor do they have to register with ADOR.
Payroll Service Filing
Payroll service companies are required through Arizona statute to file and pay electronically. They must perform the following tasks:
- Electronically register as a payroll service company.
- Electronically file returns and make payments on time.
- Electronically provide a list of clients and update that list by the first of every month.
- Provide documentation in writing by the client to act on his or her behalf with respect to withholding taxes.
- Keep clients’ money to hold for state withholding tax payment or other obligations in an account separate from the payroll service company’s funds.
- Comply with all other requirements as set forth in the statute or administrative rule.
Please note: a business that is not a payroll service company and would like to file multiple returns and payments using Web Upload or a third-party software vendor can register with the Online Payroll Service portal and upload multiple returns and/or payments using either service.
The types of files companies can send using the Payroll Service Company portal is as follows:
- Client Lists
- Form A1-APR (Arizona Annual Payment Withholding Tax Return)
- Form A1-QRT (Arizona Quarterly Withholding Tax Return)
- Form A1-R (Arizona Withholding Reconciliation Tax Return)
- Form A1-WP (Payment of Arizona Income Tax Withheld)
Third-party software companies interested in transmitting files must first register as Web Service Transmitter. For more information, refer to the Transmitter Implementation Guide found on the Online Payroll Service portal’s Resource page.
Payroll services companies and third-party software companies interested in uploading csv files via the portal must first register for the service. Refer to the Preparer User Guide for more information on registration, creation of files and file formatting.
Once companies are ready to use the portal, companies must include client lists that include the name, tax identification number (the client’s employer identification number) and federal deposit frequency of each client. The client’s address must also be the actual address of the client and not of the payroll service company. Please see the Online Payroll Service Company portal’s Resource page.
After a company has uploaded a full list of clients, only additions, deletions and/or updates need to be sent to ADOR each month.
A company can terminate registration by sending a written request to:
Arizona Department of Revenue
Attention: License and Registration
1600 W. Monroe St.
Phoenix, AZ 85007-2650
Penalties for Non-Compliance
Payroll service companies that fail to file electronically and pay electronically will face a $25 penalty each. Multiple $25 penalties could apply to the same client on one return.
For instance, if Client A is required to make four payments in the third quarter, and none of the payments are made electronically, the payroll service company would be subject to four $25 penalties, a total of $100. If the payroll service company files the quarterly reconciliation for Client A by paper, an additional penalty of $25 would apply for a total of $125 in penalties assessed toward the payroll service company related to Client A.
The penalties can be abated, but only if the failure to comply is due to reasonable cause and not willful neglect. Companies that can show reasonable cause will mail or fax Form 290 to:
Penalty Review Unit, Division 9
Arizona Department of Revenue
1600 W. Monroe St.
Phoenix, AZ 85007-2612
Fax: (602) 716-6787
Please allow up to six weeks for processing.