Lobbying Disclosure Act of 1995 (Section 5) - All Filers Are Required to Complete This Page

9. Check if this filing amends a previously filed version of this report

LOBBYING ACTIVITY. Select as many codes as necessary to reflect the general issue areas in which the registrant engaged in lobbying on behalf of the client during the reporting period. Using a separate page for each code, provide information as requested. Add additional page(s) as needed.

15. General issue area code TAX

16. Specific lobbying issues

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.

17. House(s) of Congress and Federal agencies Check if None

Treasury - Dept of, U.S. SENATE, U.S. HOUSE OF REPRESENTATIVES, Internal Revenue Service (IRS)

18. Name of each individual who acted as a lobbyist in this issue area

19. Interest of each foreign entity in the specific issues listed on line 16 above Check if None

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LOBBYING ACTIVITY. Select as many codes as necessary to reflect the general issue areas in which the registrant engaged in lobbying on behalf of the client during the reporting period. Using a separate page for each code, provide information as requested. Add additional page(s) as needed.

15. General issue area code RET

16. Specific lobbying issues

SECURE 2.0 is a comprehensive retirement plan reform bill enacted as part of the 2022 year-end spending bill. The bill has nearly 100 provisions making (mostly) improvements to 401(k) plans, IRAs, and other tax-advantaged savings vehicles. Broadly speaking, the goals of the bill are:

Encourage more employers to offer their employees a retirement plan at work-something PEOs do really well.
Encourage employees to save more for their future and to preserve those savings for longer in retirement.
Simplify and streamline the complex rules that apply to 401(k) and similar plans. Again, reducing all the complexity out of offering benefits like a 401(k) plan is something PEOs have done from the very beginning.

NAPEO supports there being a delay in the Roth catch-up provision of SECURE 2.0., in order to give providers and their software support teams/companies time to implement the requirements of this provision. NAPEO has signed onto letters written by other organizations asking Congress and Treasury to delay the implementation of this provision.

17. House(s) of Congress and Federal agencies Check if None

U.S. SENATE, U.S. HOUSE OF REPRESENTATIVES, Treasury - Dept of

18. Name of each individual who acted as a lobbyist in this issue area

19. Interest of each foreign entity in the specific issues listed on line 16 above Check if None

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Information Update Page - Complete ONLY where registration information has changed.

20. Client new address

21. Client new principal place of business (if different than line 20)

22. New General description of client’s business or activities

LOBBYIST UPDATE

23. Name of each previously reported individual who is no longer expected to act as a lobbyist for the client

ISSUE UPDATE

24. General lobbying issue that no longer pertains

AFFILIATED ORGANIZATIONS

25. Add the following affiliated organization(s)

Internet Address:

26. Name of each previously reported organization that is no longer affiliated with the registrant or client

FOREIGN ENTITIES

27. Add the following foreign entities:

28. Name of each previously reported foreign entity that no longer owns, or controls, or is affiliated with the registrant, client or affiliated organization

CONVICTIONS DISCLOSURE

29. Have any of the lobbyists listed on this report been convicted in a Federal or State Court of an offense involving bribery, extortion, embezzlement, an illegal kickback, tax evasion, fraud, a conflict of interest, making a false statement, perjury, or money laundering?
No Yes