The IRS recently issued Notice 2021-20, providing much needed guidance in regards to the process of claiming the Employee Retention Credit (ERC) for calendar year 2020. Employers that utilize a PEO, CPEO or other third-party service provider are eligible to claim the ERC through their third-party payer. The PEO/CPEO would need to file an amended Form 941 and Schedule R for the applicable quarter(s) that impact their client customers. The filing of Form 7200 or the reduction of current payroll tax obligations related to quarters ending in 2020 is not an acceptable method to claim ERC.
The ERC has specific qualifications placed on employers, and under the guidance issued, a PEO/CPEO must collect any information from the client customer necessary to accurately claim the ERC on their behalf. This includes information pertaining to other tax credits claimed (emergency paid sick or family leave and/or paid family medical leave) as well as whether the client received a PPP Loan. The Notice provides that a PEO/CPEO may rely upon the client customer information provided as well as the client customer’s information regarding their eligibility to claim the ERC. The PEO or the client customer must maintain all records which substantiate the client customer’s eligibility for the ERC. Failure to provide to the IRS any requested information to substantiate the ERC will result in each party being liable for any employment taxes that are due as a result of an improper ERC claim.
To find out more about this newly issued guidance and how to best protect your PEO, please contact one of our PEO team members.