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IRS Unveils Application Process for Certified Professional Employer Organization Program

If your firm handles payroll administration as well as tax reporting for your business clients, you may be interested in becoming a Certified Professional Employer Organization (CPEO) through the Internal Revenue Service.

The certification, which was established by Congress in late 2014, is meant to give businesses a higher measure of confidence in those who handle their financial data. Participation is voluntary, but is not free. The legislation specifies a $1,000 application fee.

Beyond the application fee, persons or companies seeking the designation must:

  • Pass background and tax compliance checks;
  • Secure an approved surety bond;
  • Satisfy financial review requirements;
  • Provide quarterly assertions and attestations regarding federal employment tax compliance;
  • Comply with the terms of any service agreements with customers; and
  • Pay an annual user fee of up to $1,000.

Officers of the applicant firm, certain owners, and other individuals specified in the regulations - as well as certain related entities and precursor entities of the firm - must also pass background and tax compliance checks and provide certain financial information.

The IRS requested information from PEOs in 2015, seeking to determine the licensing, registration and other requirements they currently face from state governments. In addition, there are private assurance organizations that offer PEOs their accreditation if they satisfy certain requirements.  The IRS asked for input on covered employees, financial audit practices, verification of payroll tax obligations, and working capital – net worth requirements.

The IRS says a new online application system will be available on its website in the coming weeks, with applications accepted starting on July 1. The application fee must be paid through Pay.gov. Paper applications will not be accepted.

A list of CPEOs will be published on the IRS website, and will be updated quarterly. The law also requires the IRS to publish the names of those CPEOs whose certification has been suspended or revoked.

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