Filing Annual Taxes with Our PEO

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Many accountants / tax preparers are unsure how to enter PEO wages/transactions into their tax software.  There’s 2 ways they can do this: All “wages” / “payments” made to the PEO (from your company bank account) are labeled as “PEO labor expenses”.  They are entered as a single line item. Imagine if your company hired Firm ABC to provide consulting services. Your company considers that payment as a business expense and moves on (barring capitalization rules, your accountant will help you with this).  The details of what Law Firm ABC did with that payment is not relevant. The easiest way to do this is simply add up ALL payments made to Fellow Travelers, and label it as “PEO labor expenses” or some similar labeling or subsets of labeling (For example, itemize the expenses as “PEO Wages & Taxes”, “PEO Health Insurance”, “PEO 401K Contributions”, etc).  You’ll have access to a itemization of costs via our payroll software.

IF your accountant does not like a general “PEO labor expenses” label, they can itemize everything as wages paid by YOUR company and ignore the fact that the Fellow Travelers EIN shows up on the tax filings. You can itemize the “payroll” costs into specific categories to their liking and can find those numbers via an annual report you can access through our payroll system or by adding up the invoices sent each pay period.  Your tax preparer should pretend that the tax forms shows your company EIN and not Fellow Travelers. The IRS has records of this and will not confuse them (if they do, the IRS just needs to be informed of the situation to correct their records). Fellow Travelers files additional tax schedules showing each client EIN and tax amounts.  When the IRS sees our EIN, they know it leads to another book they have to open to view your company tax info. To the IRS, our EIN is essentially a desktop folder (on a computer) that opens to a lot of other folders, one of which is your tax info / filings.

When it comes to PPP loans and other subsidies, PEO labor expense DOES count as “wages” paid by YOUR company. The IRS has records of this via form 941 schedule R and the annual form 940 filing. Working with our PEO does not disqualify you from any government aid programs.

P.S. Annual state wage tax filings are done by Fellow Travelers for most states.  You may have to cancel your state taxpayer ID number or file returns with zero tax liability because wages are reported & paid by Fellow Travelers.  State unemployment taxes vary by state, with most requiring your company to file with it’s own State Unemployment ID, but some aggregate using our PEO unemployment ID. Please ask us which applies to your state if necessary.

IRS Chart of Third Party Payer Arrangements:

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