ALEX MILLIKEN

HR 3223 - To amend the Internal Revenue Code of 1986 to establish procedures relating to the attribution of errors in the case of third party payors of payroll taxes, and for other purposes - NAPEO is lobbying in support of this legislation. H.R. 3223 would ensure that payroll tax credit claims filed on an aggregate return by third-party payors are not delayed due to problems with any one clients claim, and that the liability for any improper claims is assigned to the entity that initiates and benefits from the claim unless the third-party payor failed to take certain clear steps prior to filing the claim. By taking these actions, the federal government would save money by clarifying responsibility for payroll tax credits and deterring fraud and small businesses would receive their payroll tax credits in a more timely manner. Specifically, this legislation would: Ensure that any IRS audit or examination of a small business client of an aggregate tax filer does not delay the processing of any payroll tax credits claimed by the PEO or other third-party payor on behalf of other small business clients. Confirm that, with respect to any employer payroll tax credit, the small business client benefiting from the payroll tax credit is liable, and the PEO or other third-party payor is not liable, for any improperly claimed credit amount, provided that the PEO or other third-party payor took certain clear steps including: oVerifying certain wage information of which the PEO or other third-party payor has direct knowledge and collecting a certification from the client that includes certain information. oAccurately reporting the credit in accordance with the information certified by the client. oProviding the IRS with any information in its possession that the IRS could require the employer to provide, if needed to audit the employer. Be business-model neutral with respect to entities that file aggregate employment tax returns, that is, available to PEOs, IRS-certified PEOs, and agents under Code section 3504. IRS Modernization: NAPEO is lobbying Congress to call attention to the need for the IRS to use modern technology to process our tax claims. Specifically, we are asking Congress to require the IRS to use electronic returns and allow for transparency in the processing of tax returns submitted by PEOs. Additionally, NAPEO continues to work with Congress and the IRS to process amended tax returns containing Employee Retention Tax Credits (ERTC).

HR 3223 - To amend the Internal Revenue Code of 1986 to establish procedures relating to the attribution of errors in the case of third party payors of payroll taxes, and for other purposes - NAPEO is lobbying in support of this legislation. H.R. 3223 would ensure that payroll tax credit claims filed on an aggregate return by third-party payors are not delayed due to problems with any one clients claim, and that the liability for any improper claims is assigned to the entity that initiates and benefits from the claim unless the third-party payor failed to take certain clear steps prior to filing the claim. By taking these actions, the federal government would save money by clarifying responsibility for payroll tax credits and deterring fraud and small businesses would receive their payroll tax credits in a more timely manner. Specifically, this legislation would: Ensure that any IRS audit or examination of a small business client of an aggregate tax filer does not delay the processing of any payroll tax credits claimed by the PEO or other third-party payor on behalf of other small business clients. Confirm that, with respect to any employer payroll tax credit, the small business client benefiting from the payroll tax credit is liable, and the PEO or other third-party payor is not liable, for any improperly claimed credit amount, provided that the PEO or other third-party payor took certain clear steps including: oVerifying certain wage information of which the PEO or other third-party payor has direct knowledge and collecting a certification from the client that includes certain information. oAccurately reporting the credit in accordance with the information certified by the client. oProviding the IRS with any information in its possession that the IRS could require the employer to provide, if needed to audit the employer. Be business-model neutral with respect to entities that file aggregate employment tax returns, that is, available to PEOs, IRS-certified PEOs, and agents under Code section 3504. IRS Modernization: NAPEO is lobbying Congress to call attention to the need for the IRS to use modern technology to process our tax claims. Specifically, we are asking Congress to require the IRS to use electronic returns and allow for transparency in the processing of tax returns submitted by PEOs. Additionally, NAPEO continues to work with Congress and the IRS to process amended tax returns containing Employee Retention Tax Credits (ERTC).

NAPEO is lobbying to include the following provisions in tax legislation - PEO liability for client payroll tax credits: In December 2023, the IRS sent a memo to all CPEOs stating that a CPEO is solely liable for ERTC claims made on their amended tax returns. The memo also stated that PEOs are jointly liable for ERTC credits taken on their amended returns. NAPEO is lobbying Congress to introduce legislation to draw clear lines of liability for payroll tax credits taken by clients. Section 199-A: In 2017, Congress included language in the tax bill that allows passthrough business owners to deduct 20 percent of annual qualified business income when determining their tax liability - Section 199A of the tax code. In 2018, many PEOs were contacted by their clients, who said their accountants were informing them that PEO clients were not eligible for Section 199A. At that time, the Department of Treasury provided guidance that clearly states that PEO clients are eligible for this tax credit. We are asking that guidance issued in 2017 be included as legislative language in reconciliation IRS Modernization: NAPEO is lobbying Congress to call attention to the need for the IRS to use modern technology to process our tax claims. Specifically, we are asking Congress to require the IRS to use electronic returns and allow for transparency in the processing of tax returns submitted by PEOs. Additionally, NAPEO continues to work with Congress and the IRS to process amended tax returns containing Employee Retention Tax Credits (ERTC).

Professional employer organizations (PEOs) provide payroll, employee benefits, and human resource services to more than 200,000 small and mid-sized businesses with 4 million employees nationwide. Small businesses contract with PEOs to provide these services, including the payment of wages to the employees and payment of the payroll taxes on those wages. PEOs are required under the licensing or registration laws of most states to report such wages under the Employer Identification Number (EIN) of the PEO. In addition, the Internal Revenue Code (IRC) requires CPEOs to report the wages under the CPEOs EIN accompanied by a schedule reporting wages on a client-by-client basis. The Employee Retention Tax Credit: Congress created the employee retention tax credit (ERTC) as part of the CARES Act to encourage businesses to keep employees on the payroll during the COVID-19 pandemic. The ERTC is a credit against payroll taxes that was initially made available with respect to wages paid by eligible employers after March 12, 2020 and before January 1, 2021. The Consolidated Appropriations Act, 2021 (CAA) retroactively made the ERTC available to many more small businesses by eliminating the prohibition on employers claiming the ERTC if they received a covered loan under the Paycheck Protection Program. Congress further expanded and extended the ERTC so that it was generally available for wages paid through September 30, 2021. In 2020, eligible employers could claim a maximum ERTC of $5,000 per employee. In 2021, the potential credit amount was increased significantly so that eligible employers could generally claim up to $7,000 per employee per quarter (for a per-employee maximum ERTC of $21,000 over Q1-Q3 2021). Apart from those limits, there was generally no aggregate cap on the amount of ERTC an eligible employer could claim. (Different rules applied for employers that met the definition of a recovery startup business.) Because the ERTC is a credit against payroll tax, it is claimed using the IRSs employment tax system. Instead of creating a separate tax form or process to help streamline ERTC claims, the IRS revised its existing employment tax returns (the quarterly-filed Form 941, for most employers), and required eligible employers to include any ERTC claims on their Form 941 for the applicable calendar quarter(s). Thus, an employer that was eligible to claim the ERTC for each quarter would have generally needed to claim the credit on six separate Forms 941 (Q2 2020 through Q3 2021). Because these claims are paper, and not electronic forms, there has been a processing backlog at the IRS. This backlog of unprocessed ERTC returns is more than one million. NAPEO is asking both Congress and the IRS to take action to eliminate this backlog. The backlog is harming small businesses that are entitled to this credit, and further delays may harm the ability of many small companies to continue operating. NAPEO also worked with the IRS to ensure that PEOs could properly file outstanding ERTC claims as part of an outstanding IRS ERTC consolidation program offered by the IRS. A second tax issue that NAPEO is working on - liability for payroll taxes claimed by the clients of PEOs. Congress continues to enact tax relief for small businesses by providing tax credits against the employers payroll tax liability. Examples include the research and development (R&D) payroll tax credit and the employee retention tax credit (ERTC). IRS procedures generally require that payroll tax credits be claimed on (or in connection with) the employers employment tax return. In the case of an employer whose employment taxes are reported on a PEOs aggregate Form 941 (referred to as a client employer), the only way for the client employer to claim a payroll tax credit is for the PEO to claim the credit on behalf of its client on the PEOs aggregate tax form (Form 941). When a PEO claims a payroll tax credit on behalf of a client employer, IRS procedures generally require the PEO to file Schedule R (Form 941) to provide client-level information regarding the client employers tax credit. A client employers eligibility for a payroll tax credit and the amount of the allowed credit is based on information that a PEO typically does not possess, such as a clients corporate tax return or quarterly gross receipts. Thus, to claim a payroll tax credit on behalf of its client, a PEO must rely on certain information provided by the client employer that in many cases the PEO is unable to verify. If it turns out that the credit was improperly claimed, it is unfair to hold the PEO liable if the client employer provides inaccurate information to the PEO. In addition, if the IRS subsequently examines a client employers payroll tax credit claim that was reported on a PEOs aggregate Form 941, this could negatively affect unrelated client employers by causing substantial delays in other clients receipt of payroll tax credits. An IRS examination of one clients payroll tax credit claim should not adversely affect other taxpayers. NAPEO is asking both the IRS and Congress to clarify and better define liability for payroll taxes filed by aggregate tax files, which includes PEOs and CPEOs. Given the increasing number of payroll tax credits targeted at small businesses - many of which depend on PEOs for payroll processing and reporting their employment taxes - it is critical that the tax code adequately address liability for improperly claimed credits on an aggregate tax return. NAPEO supports legislation that would: * Confirm that, with respect to any tax provision providing for an employer payroll tax credit, the client employer benefitting from the payroll tax credit is liable, and the PEO is not liable, for any improperly claimed credit amount, provided that the PEO reported the credit in accordance with information provided by the client. This would further clarify congressional intent in describing multiple payroll tax credits in Code section 3511(d)(2), which provides that client employers remain the taxpayer for purposes of such credits. * Ensure that any IRS examination or investigation of a client employers payroll tax credit claim that was reported on a PEOs aggregate employment tax return does not impact any other taxpayers, including with respect to delays in the processing or benefit of any payroll tax credits claimed by the PEO on behalf of other client employers. * Be business-model neutral with respect to entities that file aggregate employment tax returns , that is, available to PEOs, CPEOs, and agents under Code section 3504. We also lobbyied on tax reform - Liability for payroll tax claims made by the clients of PEOs; IRS examination or investigation of a client employers payroll tax credit claim that was reported on a PEOs aggregate employment tax return does not impact any other taxpayers; clarity that a PEO client can receive a Section 199A tax credit; and modernization of IRS tax return processing.

Expanding the definition of joint employer - On October 26, 2023, the National Labor Relations Board (NLRB) announced its final joint employer rule. The rule states that two or more entities may be considered joint employers of a group of employees if each entity has an employment relationship with the employees, and if the entities share or co-determine one or more of the employees essential terms and conditions of employment. The effective date of the new rule is February 26, 2024. The new standard will only be applied to cases filed after the effective date. that it would delay the effective date of the joint employer rule to February 26, 2024, in order to facilitate resolution of legal challenges with respect to the rule. The NLRB also clarified that the new standard will only be applied to cases filed after the rule becomes effective. NAPEO is opposed to this rule and supports legislation (H.J. Res. 98) which repeals the joint employer standard. E-Delivery - Each year, employers and health plans send more than a billion sheets of paper to Americas families regarding their health care benefits. Despite a strong preference for e-delivery health plan communications, federal law prohibits employers from defaulting to safe and secure electronic communications. Aligned with an overwhelming employee preference for e-delivery, recent federal rulemaking allowed for e-delivery in employee retirement plans. Extending greater flexibility for e-delivery in health benefit plans is a commonsense, straightforward regulatory action that would benefit the backbone of the economy - American workers, employers, and labor organizations - all while reducing the climate and environmental impacts of mandatory paper health care mailings.

Expanding the definition of joint employer - On October 26, 2023, the National Labor Relations Board (NLRB) announced its final joint employer rule. The rule states that two or more entities may be considered joint employers of a group of employees if each entity has an employment relationship with the employees, and if the entities share or co-determine one or more of the employees essential terms and conditions of employment. The effective date of the new rule is February 26, 2024. The new standard will only be applied to cases filed after the effective date. that it would delay the effective date of the joint employer rule to February 26, 2024, in order to facilitate resolution of legal challenges with respect to the rule. The NLRB also clarified that the new standard will only be applied to cases filed after the rule becomes effective. NAPEO is opposed to this rule and supports legislation (H.J. Res. 98) which repeals the joint employer standard. E-Delivery - Each year, employers and health plans send more than a billion sheets of paper to Americas families regarding their health care benefits. Despite a strong preference for e-delivery health plan communications, federal law prohibits employers from defaulting to safe and secure electronic communications. Aligned with an overwhelming employee preference for e-delivery, recent federal rulemaking allowed for e-delivery in employee retirement plans. Extending greater flexibility for e-delivery in health benefit plans is a commonsense, straightforward regulatory action that would benefit the backbone of the economy - American workers, employers, and labor organizations - all while reducing the climate and environmental impacts of mandatory paper health care mailings.

Expanding the definition of joint employer - On October 26, 2023, the National Labor Relations Board (NLRB) announced its final joint employer rule. The rule states that two or more entities may be considered joint employers of a group of employees if each entity has an employment relationship with the employees, and if the entities share or co-determine one or more of the employees essential terms and conditions of employment. The effective date of the new rule is February 26, 2024. The new standard will only be applied to cases filed after the effective date. that it would delay the effective date of the joint employer rule to February 26, 2024, in order to facilitate resolution of legal challenges with respect to the rule. The NLRB also clarified that the new standard will only be applied to cases filed after the rule becomes effective. NAPEO is opposed to this rule and supports legislation (H.J. Res. 98) which repeals the joint employer standard

Expanding the definition of joint employer - On October 26, 2023, the National Labor Relations Board (NLRB) announced its final joint employer rule. The rule states that two or more entities may be considered joint employers of a group of employees if each entity has an employment relationship with the employees, and if the entities share or co-determine one or more of the employees essential terms and conditions of employment. The effective date of the new rule is February 26, 2024. The new standard will only be applied to cases filed after the effective date. that it would delay the effective date of the joint employer rule to February 26, 2024, in order to facilitate resolution of legal challenges with respect to the rule. The NLRB also clarified that the new standard will only be applied to cases filed after the rule becomes effective. NAPEO is opposed to this rule and supports legislation (H.J. Res. 98) which repeals the joint employer standard

Professional employer organizations (PEOs) provide payroll, employee benefits, and human resource services to more than 175,000 small and mid-sized businesses with 4 million employees nationwide. Small businesses contract with PEOs to provide these services, including the payment of wages to the employees and payment of the payroll taxes on those wages. PEOs are required under the licensing or registration laws of most states to report such wages under the Employer Identification Number (EIN) of the PEO. In addition, the Internal Revenue Code (IRC) requires CPEOs to report the wages under the CPEOs EIN accompanied by a schedule reporting wages on a client-by-client basis. The Employee Retention Tax Credit: Congress created the employee retention tax credit (ERTC). as part of the CARES Act to encourage businesses to keep employees on the payroll during the COVID-19 pandemic. The ERTC is a credit against payroll taxes that was initially made available with respect to wages paid by eligible employers after March 12, 2020 and before January 1, 2021. The Consolidated Appropriations Act, 2021 (CAA) retroactively made the ERTC available to many more small businesses by eliminating the prohibition on employers claiming the ERTC if they received a covered loan under the Paycheck Protection Program. Congress further expanded and extended the ERTC so that it was generally available for wages paid through September 30, 2021. In 2020, eligible employers could claim a maximum ERTC of $5,000 per employee. In 2021, the potential credit amount was increased significantly so that eligible employers could generally claim up to $7,000 per employee per quarter (for a per-employee maximum ERTC of $21,000 over Q1-Q3 2021). Apart from those limits, there was generally no aggregate cap on the amount of ERTC an eligible employer could claim. (Different rules applied for employers that met the definition of a recovery startup business.) Because the ERTC is a credit against payroll tax, it is claimed using the IRSs employment tax system. Instead of creating a separate tax form or process to help streamline ERTC claims, the IRS revised its existing employment tax returns (the quarterly-filed Form 941, for most employers), and required eligible employers to include any ERTC claims on their Form 941 for the applicable calendar quarter(s). Thus, an employer that was eligible to claim the ERTC for each quarter would have generally needed to claim the credit on six separate Forms 941 (Q2 2020 through Q3 2021). Because these claims are paper, and not electronic forms, there has been a processing backlog at the IRS. This backlog recently hit one million unprocessed Form 941-X (the form a small business would use to claim the ERTC). NAPEO is asking both Congress and the IRS to take action to eliminate this backlog. The backlog is harming small businesses that are entitled to this credit, and further delays may harm the ability of many small companies to continue operating. The backlog of applications for the ERTC hit one million in April 2023. A second tax issue that NAPEO is working on concerns liability for payroll taxes claimed by the clients of PEOs. Congress continues to enact tax relief for small businesses by providing tax credits against the employers payroll tax liability. Examples include the research and development (R&D) payroll tax credit and the employee retention tax credit (ERTC). IRS procedures generally require that payroll tax credits be claimed on (or in connection with) the employers employment tax return. In the case of an employer whose employment taxes are reported on a PEOs aggregate Form 941 (referred to as a client employer), the only way for the client employer to claim a payroll tax credit is for the PEO to claim the credit on behalf of its client on the PEOs aggregate tax form (Form 941). When a PEO claims a payroll tax credit on behalf of a client employer, IRS procedures generally require the PEO to file Schedule R (Form 941) to provide client-level information regarding the client employers tax credit. A client employers eligibility for a payroll tax credit and the amount of the allowed credit is based on information that a PEO typically does not possess, such as a clients corporate tax return or quarterly gross receipts. Thus, to claim a payroll tax credit on behalf of its client, a PEO must rely on certain information provided by the client employer that in many cases the PEO is unable to verify. If it turns out that the credit was improperly claimed, it is unfair to hold the PEO liable if the client employer provides inaccurate information to the PEO. In addition, if the IRS subsequently examines a client employers payroll tax credit claim that was reported on a PEOs aggregate Form 941, this could negatively affect unrelated client employers by causing substantial delays in other clients receipt of payroll tax credits. An IRS examination of one clients payroll tax credit claim should not adversely affect other taxpayers. NAPEO is asking both the IRS and Congress to clarify and better define liability for payroll taxes filed by aggregate tax files, which includes PEOs and CPEOs. Given the increasing number of payroll tax credits targeted at small businesses - many of which depend on PEOs for payroll processing and reporting their employment taxes - it is critical that the Code adequately address liability for improperly claimed credits on an aggregate tax return. NAPEO supports legislation that would: * Confirm that, with respect to any tax provision providing for an employer payroll tax credit, the client employer benefitting from the payroll tax credit is liable, and the PEO is not liable, for any improperly claimed credit amount, provided that the PEO reported the credit in accordance with information provided by the client. This would further clarify congressional intent in describing multiple payroll tax credits in Code section 3511(d)(2), which provides that client employers remain the taxpayer for purposes of such credits. * Ensure that any IRS examination or investigation of a client employers payroll tax credit claim that was reported on a PEOs aggregate employment tax return does not impact any other taxpayers, including with respect to delays in the processing or benefit of any payroll tax credits claimed by the PEO on behalf of other client employers. * Be business-model neutral with respect to entities that file aggregate employment tax returns , that is, available to PEOs, CPEOs, and agents under Code section 3504. Finally, NAPEO continues to work with the IRS to improve the process by which a PEO can be certified by the IRS (The CPEO program). Items we support include making permanent the electronic signature on IRS Form 8973; the electronic filing of Form 8973; and improved/more transparent procedures for the CPEO suspension and termination process.