Who this is for: Practices that have employees in more than one state, or that are thinking about keeping an existing payroll provider for some employees while running others through Alpaca payroll.

This article is general information, not tax or legal advice. Your CPA or tax professional should confirm the right setup for your business.

The short answer

If all your employees are paid under the same EIN (Employer Identification Number), all of them should be paid through one payroll provider. Your state filings would usually be fine if you split payroll between two providers. The problems show up at the federal level with the IRS.

Why it matters: the IRS expects one set of filings per EIN

Your EIN is how the IRS identifies your business as an employer. The IRS expects a single, complete set of payroll filings for each EIN, even if you have several locations or operate in several states:

Each payroll provider only knows about the employees it pays. If two providers both run payroll under your EIN:

• Each one files its own Form 941 with only its share of the numbers. The IRS gets two different returns for the same EIN in the same quarter. It may flag the second as a duplicate and send a letter or notice, which usually has to be fixed with an amended return (Form 941-X).

• Deposits won't match the returns. The IRS sees deposits from both providers but only one 941's worth of liability, or the reverse. That often leads to notices about overpayments, underpayments, or penalties.

• Year-end won't reconcile. The IRS and SSA compare the wages on your W-2s and W-3 against your 941s. Two sets of W-2 filings that don't line up with the 941s on file can trigger mismatch notices.

• FUTA can be over- or under-calculated. Only one Form 940 can be filed, and neither provider has the full picture. Multi-state employers may also need Schedule A (Form 940) for states where the federal unemployment credit is reduced, which requires wage data from every state.

Sorting out these notices usually means calling the IRS, filing amended returns, and paying your CPA for extra work, often months after the fact.

Exception: PEOs. Everything above applies to standard payroll providers, which file under your EIN. A PEO (Professional Employer Organization) or other "section 3504 agent" files under its own EIN and reports your wages on its combined return. In that setup, the PEO and the employer each file a 941 for the wages they paid, and the rules above don't apply the same way. If one of your providers is a PEO, check with your CPA.

Why state filings usually aren't the issue

Each state gives you its own withholding and unemployment account numbers. If one provider handles Colorado and another handles a different state, each is filing with a separate agency under a separate state account, so they don't collide. The conflict happens where both providers report to the same agency under the same ID. For payroll, that's usually the IRS.

State filings can still collide if an employee works in both states, or if both providers file in the same state.

What this means for your practice

If your employees are paid under one EIN, your options are usually:

1. Move everyone to one payroll provider (recommended). One provider can run payroll in multiple states under the same EIN and file one accurate set of federal returns.

2. Use separate EINs for separate entities. If the operations in each state are, or should be, separate legal entities, each entity can have its own EIN and payroll provider. This is a bigger decision that affects your entity structure, contracts, and credentialing, so talk to your CPA or attorney first.

3. Keep two providers and reconcile federal filings by hand. This is technically possible, but it's rarely worth it. Someone, usually your CPA, has to combine both providers' data into one 941 and 940 each period and turn off federal filing at one provider. The risk of errors is high.

Changing providers mid-year

If you move employees from another provider to Alpaca payroll partway through the year, we'll need the year-to-date payroll totals from your previous provider. Several payroll taxes have yearly wage caps that are tracked per employee, including Social Security, FUTA, and state unemployment. Without the earlier totals, taxes can be over-withheld, and your federal filings and W-2s won't reflect the full year.

Ask your previous provider for a year-to-date payroll register and copies of the quarterly filings they've already submitted.

Next steps

• Tell us which employees, states, and EINs are involved, and which provider currently pays them, including whether any provider is a PEO.

• Loop in your CPA or tax professional. We're happy to coordinate with them directly.

• If you're not sure whether your locations should share an EIN, raise it with your CPA before you set up payroll.