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ERC with a PEO

Technical topics regarding tax preparation.
#1
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I have a client who uses a PEO, I asked about the ERC for them and for the first time I've been able to actually view the 941's that they process. The EIN used on the 941's is the client's EIN (interesting point I just realized though is that the EIN on the W-2 is the PEO's). Anyway, the PEO has not applied the ERC, 4th quarter wages should qualify as does the client for both reduced gross revenue and having been shut down. When asked about it this is the response from the PEO:

"We did not claim the credit for ERC. Your 941 is part of our company so it gets combined with 100 other clients under our EIN and then submitted. I have included for Paula the 941's for the 2020 year. She can claim the ERC for employees not working." (bold typeface is mine, as far as I understand it, employees that aren't working have nothing to do with this.)

That explanation doesn't make sense to me. Can anyone comment? How are PEO's being treated for the ERC? This is cross posted with a FB group I also belong to.
 

#2
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In IRS FAQ's question 87, it says that an eligible employer using a PEO can claim the ERC and it's done on Schedule R of the aggregate 941 filed by the PEO. There are rules for a certified PEO and those that aren't certified. Both utilize Schedule R in slightly different ways. In the case of my client, the PEO has not taken steps to calculate the ERC, which is almost $30,000. So are they alluding to my preparing and filing a 941X on behalf of my client? I don't mind doing it, I've already prepared a schedule from an Excel worksheet provided in a webinar I took on the ERC. The question is can I do that so the client will get a check, or will IRS kick it out?
 

#3
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Just bringing this to the top. Can we file a 941X for a client using a PEO? The PEO has made it clear they aren't going to do that.
 

#4
jon  
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Really, what PEO says they will not file for a client. That worries me?
 

#5
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Evidently most of them. For my client, it is a relatively small company in Hawaii. They provided us with draft copies of 941's for the year along with the comment noted above.

Comment from PEO:

"We did not claim the credit for ERC. Your 941 is part of our company so it gets combined with 100 other clients under our EIN and then submitted. I have included for Paula the 941's for the 2020 year. She can claim the ERC for employees not working." (bold typeface is mine, as far as I understand it, employees that aren't working have nothing to do with this.)
 

#6
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It really amazes me that nobody will even comment on this or enter into a discussion.. I posted the same question elsewhere and one person said "Yes, you can." That's the closest to a comment as it has gotten. I was working with the PEO yesterday for my client and they provided me with a couple of reports that can be used as documentation (i.e. list of employees paid and their amounts for the periods I was working with and a list of group health coverage paid on behalf of each employee for the time periods involved). I'm going to contact the client, tell them what the credit can be (total is $60,000 so it's not something to sneeze at), and let them know the possible outcomes of filing the 941X. There are two, one for a March payroll and one for the fourth quarter. Second and third quarter was covered by PPP for which forgiveness is in the works.
 

#7
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The PEO is supposed to attach a schedule to the 941 indicating which employer claimed which credit. The PEO sounds uncooperative.
 

#8
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I would love an answer to this the PEOs are not cooperative.
 

#9
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The IRS FAQ seems pretty clear:

https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-special-issues-for-employers-faqs

87. Can an Eligible Employer that uses a third party to report and pay employment taxes to the IRS get the Employee Retention Credit?

If an Eligible Employer uses a CPEO or a 3504 agent to report its federal employment taxes on an aggregate Form 941, the CPEO or 3504 agent will report the Employee Retention Credit on its aggregate Form 941 and Schedule R, Allocation Schedule for Aggregate Form 941 Filers, that it already files. An Eligible Employer can submit its own Form 7200, Advance Payment of Employer Credits Due to COVID-19, to claim the advance credit. The Eligible Employer will need to provide a copy of the Form 7200 to the CPEO or 3504 agent so the CPEO or 3504 agent can properly report the Employee Retention Credit on the Form 941.

If an Eligible Employer uses a non-certified PEO to report and pay its federal employment taxes, the PEO will need to report the Employee Retention Credit on an aggregate Form 941 and separately report the Employee Retention Credit allocable to the employers for which it is filing the aggregate Form 941 on an accompanying schedule R. The PEO does not have to complete Schedule R with respect to employers for which it is not claiming an Employee Retention Credit. The Eligible Employer will need to provide a copy of any Form 7200 that it submitted for an advance to the PEO so the PEO can properly report the Employee Retention Credit on the Form 941. These rules are similar to the rules that apply with respect to the payroll tax election available under section 41(h) of the Code for the credit for certain research and development expenses.


In either situation it is the PEO who must claim the ERC on the combined 941. If they are unwilling to do so I don't see how the individual clients of the PEO could file their own amended 941's.

Perhaps it's time to reconsider using this PEO.
 

#10
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I’m considering contacting these people

https://www.napeo.org/about-napeo/staff-headquarters

And an attorney.
 

#11
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In defense of the uncooperative PEO, think about all the information that must be known in order to calculate the ERC. The FAQ might be good to have, but it's not very well thought out. Imagine having anywhere between 100 and 500 clients on an aggregate 941. What an ominous task it will be to collect all the information in a timely manner, verify, and calculate the credit. They would need an entire department just to do all this. What a nightmare!
 

#12
dbrown  
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I am encountering the same problem for a client. The company that acted as a PEO for the client (although they hold themselves out as a staffing/shift company, the employees were all my client’s existing employees and they only provided PEO services to the client) is refusing to file a 941X to assist client in claiming ERTC. Were you able to get your client’s PEO to cooperate or get snub relief for your client with IRS?
 

#13
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I just saw the dbrown. The PEO used by my client was really helpful, all things considered. We have never had a response to the paperwork that was filed back in February and with the "guidance" provided by Notice 2021-49, that might be a good thing since much of the ERC was based on shareholder income. The PEO, however, would not prepare or file forms.
 

#14
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My client who uses a PEO, has finally received a letter from the iRS in response to our filing the 941X. They are requesting copies of 941's. I addressed this to the PEO, who was actually quite helpful when we started doing this which I understand was kind of unique since other PEO's were less than helpful.

I requested some information from the PEO so we could respond and they emailed me back. I thought this part of the email was really interesting: "....We are working with the IRS as well, not just on your file but in other clients and the solution for the credit may have to come directly from XXXX as the employer of record." They are supposed to get back to me later this week or early next week. I'm interested to find out what their interaction is and has been with IRS, it's ther first I've heard of that.
 

#15
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This is the important part of an email I received from my client's PEO

"It seems IRS is requiring PEO to apply on behalf of all clients (changing rules again!), making the PEO responsible for any problems with the credits. Once PEO receives then it becomes the PEO responsibility to provide credits to client

We have our tax attorneys working on it."

I haven't heard anything outside of the comments from this PEO via email. If anyone is interested, I'll post as it moves along and I know more. I'm not sure about PEO's receiving the funds from the ERC and then disbursing them to clients. That seems to open a door to some unethical activity. I can see other issues with the PEO being resonsible since they are not going to know what a cient's income has been. More interesting COVID issues :o ;) :(
 

#16
dbrown  
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With respect to your post on 11 Oct 2021, was your client able to file the 941X itself or did the PEO relent and file it? My client's PEO has offered to provide the necessary wage and tax information, but won't file the form in it's name. We have spoken to folks at the IRS responsible for the third party payer sections of Notice 2021-20 and they didn't think my client could file the form. They said the PEO has to file the 941X and Schedule R. If your client was able to file the form without the PEO signing it, that might be an avenue my client can use.
 

#17
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Back in February, the PEO would provide info, but not file anything, and we were too late to do a 7200. So I prepared 941X's for two quarters, and that is what we have just had a letter from IRS on. They want us to file a 941 since none is on file. Obviously that can't be done. So I contacted the PEO to see if they can provide their 941 with a redacted Schedule R and that is what led to the conversation we are now having via e-mail and them telling me that IRS is saying the PEO is responsible for filing for the credit. All we can do now is wait to see where this leads. I was kind of hoping that others with clients using a PEO would be able to weigh in on what they might be getting out of all this.
 


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