An individual or entity that performs services for a service recipient in exchange for compensation or other taxable benefits. Common types of service providers include:

For purposes of Section 409A of the Internal Revenue Code (Section 409A), a service provider may be an individual or entity that is currently providing services to a service recipient but also generally includes a person who has separated from service (a former service provider).

Section 409A prescribes a comprehensive set of rules for the taxation of nonqualified deferred compensation and imposes strict penalties for violations of Section 409A. These penalties are imposed on the service provider rather than the service recipient. For more information regarding Section 409A, see Practice Note, Section 409A: Deferred Compensation Tax Rules: Overview.

In the employee benefits context, the term service provider refers to a third party that assists benefit plan sponsors with plan administration. However, the plan's third-party service provider does not typically serve as the formal plan administrator for compliance purposes under the Employee Retirement Income Security Act of 1974 (ERISA) (29 U.S.C. § 1002(16)(A); see Practice Note, Negotiating ERISA Service Provider Agreements). Third-party service providers may include health insurers, third-party administrators (TPAs), pharmacy benefit managers (PBMs), professional employer organizations (PEOs), and other entities (see Standard Document, PEO Client Service Agreement).