IRS issues guidance on certified professional employer organizations

The IRS recently released guidance (Revenue Procedure 2023-18) providing clarifications and updates on how to obtain and maintain Certified Professional Employee Organization (CPEO) status. The revenue procedure consolidates the ongoing requirements provided in Revenue Procedure 2016-33 — as modified by Notice 2016-49, Revenue Procedure 2017-14, and the regulations under Sections 3511 and 7705.

Professional Employer Organizations (PEOs) handle various payroll administration and tax reporting responsibilities for their clients’ employee wages and are typically paid a fee based on payroll costs.

The IRS certifies applicants for CPEO status after determining organizations meet applicable requirements.

CPEOs can provide employers with certain advantages when compared to non-certified PEOs, including (but not necessarily limited to) the elimination of joint liability for employment taxes with respect to any wages paid by a CPEO and no mid-year wage-based restarting of certain employment taxes when switching to and from a CPEO.

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Jeff Martin

Partner, Washington National Tax Office

+1 202 521 1526

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