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President signs bill recognizing PEOs in tax code

December 22, 2014

The President signed legislation defining professional employer organizations In the federal tax code, the National Association of Professional Employer Organizations announced today.

The legislation, the Small Business Efficiency Act, was part of a tax extenders bill passed by the Senate last week, according to NAPEO. The bill includes provisions that define PEOs in the federal tax code and creates a voluntary certification program for PEOs within the IRS.

“This is an historic moment for the PEO industry because Congress has now formally codified PEOs within the tax code and recognized the key role PEOs play in helping small businesses grow and thrive,” said NAPEO President and CEO Pat Cleary. “The certification program created by this legislation provides added assurance to small business owners who want to turn to a PEO to handle their employment tax issues and back office administrative and HR tasks.”

The legislation creates a voluntary certification program for PEOs within the IRS. Once certified, a PEO would take on sole liability for the collection and remission of federal employment taxes for worksite employees. Small and mid-sized businesses that contract with certified PEOs would be assured that they would not be liable for employment taxes once they remit their employees’ tax withholdings to the PEO.

“Now that the bill has been signed, we look forward to rolling up our sleeves and working with the administration to develop an effective regulatory framework,” Cleary said. “Our hope is that the process will begin soon since the bill language provides a relatively tight implementation timeline.”

The legislation was backed by Sen. Chuck Grassley, R-Iowa; Sen. Bill Nelson, D-Fla.; Rep. Kevin Brady, R-Texas; and Rep Mike Thompson, D-Calif.

Approximately 250,000 businesses use PEOs, according to NAPEO.