The IRS has issued temporary (TD 9768)
and proposed (REG-127561-15
) regulations implementing a new voluntary certification program for professional employer organizations (PEOs).
PEOs handle various payroll administration and tax reporting responsibilities for their business clients and consider themselves co-employers of their clients’ employees. Forms W-2 are typically issued to the employees in the name of the PEO, and the PEO takes responsibility for remitting federal employment taxes. However, under federal employment tax rules, a PEO’s clients are ultimately responsible for employment taxes. Legislation enacted in late 2014 requires the IRS to establish a voluntary certification program for PEOs. For purposes of federal employment taxes and other obligations under the federal employment tax rules, a certified PEO (CPEO) is generally treated as the employer of any individual performing services for a customer of the CPEO. Thus, if a PEO is a CPEO, the PEO’s customers are relieved of ultimate responsibility for employment taxes.
The regulations establish the certification process. To become and remain certified, PEOs must meet requirements that are described in the regulations and cover areas such as tax status, background, experience, business location, financial reporting and bonding. The application process for CPEO status will open on July 1, 2016. Subsequently, as required by law, the IRS will publish lists of CPEOs and those whose certification has been revoked or suspended.
The temporary regulations were effective on May 6, 2016. The proposed regulations are to be effective on and after the date they are published in the Federal Register
as final or temporary regulations, but taxpayers can rely on the proposed regulations until final or temporary regulations are published.
Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.