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Internal Revenue Code, § 3511. Certified Professional Employer Organizations

I.R.C. § 3511(a) General Rules
For purposes of the taxes, and other obligations, imposed by this subtitle—
I.R.C. § 3511(a)(1)
a certified professional employer organization shall be treated as the employer (and no other person shall be treated as the employer) of any work site employee performing services for any customer of such organization, but only with respect to remuneration remitted by such organization to such work site employee, and
I.R.C. § 3511(a)(2)
the exemptions, exclusions, definitions, and other rules which are based on type of employer and which would (but for paragraph (1)) apply shall apply with respect to such taxes imposed on such remuneration.
I.R.C. § 3511(b) Successor Employer Status
For purposes of sections 3121(a)(1), 3231(e)(2)(C), and 3306(b)(1)
I.R.C. § 3511(b)(1)
a certified professional employer organization entering into a service contract with a customer with respect to a work site employee shall be treated as a successor employer and the customer shall be treated as a predecessor employer during the term of such service contract, and
I.R.C. § 3511(b)(2)
a customer whose service contract with a certified professional employer organization is terminated with respect to a work site employee shall be treated as a successor employer and the certified professional employer organization shall be treated as a predecessor employer.
I.R.C. § 3511(c) Liability Of Certified Professional Employer Organization
Solely for purposes of its liability for the taxes and other obligations imposed by this subtitle—
I.R.C. § 3511(c)(1)
a certified professional employer organization shall be treated as the employer of any individual (other than a work site employee or a person described in subsection (f)) who is performing services covered by a contract meeting the requirements of section 7705(e)(2), but only with respect to remuneration remitted by such organization to such individual, and
I.R.C. § 3511(c)(2)
the exemptions, exclusions, definitions, and other rules which are based on type of employer and which would (but for paragraph (1)) apply shall apply with respect to such taxes imposed on such remuneration.
I.R.C. § 3511(d) Treatment Of Credits
I.R.C. § 3511(d)(1) In General
For purposes of any credit specified in paragraph (2)—
I.R.C. § 3511(d)(1)(A)
such credit with respect to a work site employee performing services for the customer applies to the customer, not the certified professional employer organization,
I.R.C. § 3511(d)(1)(B)
the customer, and not the certified professional employer organization, shall take into account wages and employment taxes—
I.R.C. § 3511(d)(1)(B)(i)
paid by the certified professional employer organization with respect to the work site employee, and
I.R.C. § 3511(d)(1)(B)(ii)
for which the certified professional employer organization receives payment from the customer, and
I.R.C. § 3511(d)(1)(C)
the certified professional employer organization shall furnish the customer and the Secretary with any information necessary for the customer to claim such credit.
I.R.C. § 3511(d)(2) Credits Specified
A credit is specified in this paragraph if such credit is allowed under—
I.R.C. § 3511(d)(2)(A)
section 41 (credit for increasing research activity),
I.R.C. § 3511(d)(2)(B)
section 45A (Indian employment credit),
I.R.C. § 3511(d)(2)(C)
section 45B (credit for portion of employer social security taxes paid with respect to employee cash tips),
I.R.C. § 3511(d)(2)(D)
section 45C (clinical testing expenses for certain drugs for rare diseases or conditions),
I.R.C. § 3511(d)(2)(E)
section 45R (employee health insurance expenses of small employers),
I.R.C. § 3511(d)(2)(F)
section 51 (work opportunity credit),
I.R.C. § 3511(d)(2)(G)
section 1396 (empowerment zone employment credit), and
I.R.C. § 3511(d)(2)(H)
any other section as provided by the Secretary.
I.R.C. § 3511(e) Special Rule For Related Party
This section shall not apply in the case of a customer which bears a relationship to a certified professional employer organization described in section 267(b) or 707(b). For purposes of the preceding sentence, such sections shall be applied by substituting “10 percent” for “50 percent”.
I.R.C. § 3511(f) Special Rule For Certain Individuals
For purposes of the taxes imposed under this subtitle, an individual with net earnings from self-employment derived from the customer's trade or business (including a partner in a partnership that is a customer) is not a work site employee with respect to remuneration paid by a certified professional employer organization.
I.R.C. § 3511(g) Reporting Requirements And Obligations
The Secretary shall develop such reporting and recordkeeping rules, regulations, and procedures as the Secretary determines necessary or appropriate to ensure compliance with this title by certified professional employer organizations or persons that have been so certified. Such rules shall include—
I.R.C. § 3511(g)(1)
notification of the Secretary in such manner as the Secretary shall prescribe in the case of the commencement or termination of a service contract described in section 7705(e)(2) between such a person and a customer, and the employer identification number of such customer,
I.R.C. § 3511(g)(2)
such information as the Secretary determines necessary for the customer to claim the credits identified in subsection (d) and the manner in which such information is to be provided, as prescribed by the Secretary, and
I.R.C. § 3511(g)(3)
such other information as the Secretary determines is essential to promote compliance with respect to the credits identified in subsection (d) and section 3302, and
shall be designed in a manner which streamlines, to the extent possible, the application of requirements of this section and section 7705, the exchange of information between a certified professional employer organization and its customers, and the reporting and recordkeeping obligations of the certified professional employer organization.
I.R.C. § 3511(h) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.
(Added by Pub. L. 113-295, Div. B, title II, Sec. 206(a), Dec. 19, 2014, 128 Stat. 4010.)
BACKGROUND NOTES
EFFECTIVE DATE
Effective for wages for services performed on or after January 1 of the first calendar year beginning more than 12 months after the date of the enactment of this Act [Enacted: Dec. 19, 2014].
EMPLOYEE RETENTION CREDIT FOR EMPLOYERS SUBJECT TO CLOSURE DUE TO COVID-19
Sec. 2301 of Pub. L. 116-136 provided:
“SEC. 2301. EMPLOYEE RETENTION CREDIT FOR EMPLOYERS SUBJECT TO CLOSURE DUE TO COVID-19.
“(a) IN GENERAL.—In the case of an eligible employer, there shall be allowed as a credit against applicable employment taxes for each calendar quarter an amount equal to 50 percent of the qualified wages with respect to each employee of such employer for such calendar quarter.
“(b) LIMITATIONS AND REFUNDABILITY.—
“(1) WAGES TAKEN INTO ACCOUNT.—The amount of qualified wages with respect to any employee which may be taken into account under subsection (a) by the eligible employer for all calendar quarters shall not exceed $10,000.
“(2) CREDIT LIMITED TO EMPLOYMENT TAXES.—The credit allowed by subsection (a) with respect to any calendar quarter shall not exceed the applicable employment taxes (reduced by any credits allowed under subsections (e) and (f) of section 3111 of the Internal Revenue Code of 1986 and sections 7001 and 7003 of the Families First Coronavirus Response Act) on the wages paid with respect to the employment of all the employees of the eligible employer for such calendar quarter.
“(3) REFUNDABILITY OF EXCESS CREDIT.—
“(A) IN GENERAL.—If the amount of the credit under subsection (a) exceeds the limitation of paragraph (2) for any calendar quarter, such excess shall be treated as an overpayment that shall be refunded under sections 6402(a) and6413(b) of the Internal Revenue Code of 8 1986.
“(B) TREATMENT OF PAYMENTS.—For purposes of section 1324 of title 31, United States Code, any amounts due to the employer under this paragraph shall be treated in the same manner as a refund due from a credit provision referred to in subsection (b)(2) of such section.
“(c) DEFINITIONS.—For purposes of this section—
“(1) APPLICABLE EMPLOYMENT TAXES.—The term ‘‘applicable employment taxes’’ means the following:
“(A) The taxes imposed under section 3111(a) of the Internal Revenue Code of 1986.
“(B) So much of the taxes imposed under section 3221(a) of such Code as are attributable to the rate in effect under section 3111(a) of such Code.
“(2) ELIGIBLE EMPLOYER.—
(A) IN GENERAL.—The term ‘‘eligible employer’’ means any employer—
“(i) which was carrying on a trade or business during calendar year 2020, and
“(ii) with respect to any calendar quarter, for which—
“(I) the operation of the trade or business described in clause (i) is fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to the coronavirus disease 2019 (COVID-19), or
“(II) such calendar quarter is within the period described in subparagraph (B).
“(B) SIGNIFICANT DECLINE IN GROSS RECEIPTS.—The period described in this subparagraph is the period—
“(i) beginning with the first calendar quarter beginning after December 31, 2019, for which gross receipts (within the meaning of section 448(c) of the Internal Revenue Code of 1986) for the calendar quarter are less than 50 percent of gross receipts for the same calendar quarter in the prior year, and
“(ii) ending with the calendar quarter following the first calendar quarter beginning after a calendar quarter described in clause (i) for which gross receipts of such employer are greater than 80 percent of gross receipts for the same calendar quarter in the prior year.
“(C) TAX-EXEMPT ORGANIZATIONS.—In the case of an organization which is described in section 501(c) of the Internal Revenue Code of 1986 and exempt from tax under section 501(a) of such Code, clauses (i) and (ii)(I) of subparagraph (A) shall apply to all operations of such organization.
“(3) QUALIFIED WAGES.—
“(A) IN GENERAL.—The term ‘‘qualified wages’’ means—
“(i) in the case of an eligible employer for which the average number of full-time employees (within the meaning of section 4980H of the Internal Revenue Code of 1986) employed by such eligible employer during 2019 was greater than 100, wages paid by such eligible employer with respect to which an employee is not providing services due to circumstances described in subclause (I) or (II) of paragraph (2)(A)(ii), or
“(ii) in the case of an eligible employer for which the average number of full-time employees (within the meaning of section 4980H of the Internal Revenue Code of 1986) employed by such eligible employer during 2019 was not greater than 100—
“(I) with respect to an eligible employer described in subclause (I) of paragraph (2)(A)(ii), wages paid by such eligible employer with respect to an employee during any period described in such clause, or
“(II) with respect to an eligible employer described in subclause (II) of such paragraph, wages paid by such eligible employer with respect to an employee during such quarter.
“Such term shall not include any wages taken into account under section 7001 or section 7003 of the Families First Coronavirus Response Act.
“(B) LIMITATION.—Qualified wages paid or incurred by an eligible employer described in subparagraph (A)(i) with respect to an employee for any period described in such subparagraph may not exceed the amount such employee would have been paid for working an equivalent duration during the 30 days immediately preceding such period.
“(C) ALLOWANCE FOR CERTAIN HEALTH PLAN EXPENSES.—
“(i) IN GENERAL.—The term ‘‘qualified wages’’ shall include so much of the eligible employer's qualified health plan expenses as are properly allocable to such wages.
“(ii) QUALIFIED HEALTH PLAN EXPENSES.—For purposes of this paragraph, the term ‘‘qualified health plan expenses’’ means amounts paid or incurred by the eligible employer to provide and maintain a group health plan (as defined in section 5000(b)(1) of the Internal Revenue Code of 1986), but only to the extent that such amounts are excluded from the gross income of employees by reason of section 106(a) of such Code.
“(iii) ALLOCATION RULES.—For purposes of this paragraph, qualified health plan expenses shall be allocated to qualified wages in such manner as the Secretary may prescribe. Except as otherwise provided by the Secretary, such allocation shall be treated as properly made if made on the basis of being pro rata among employees and pro rata on the basis of periods of coverage (relative to the periods to which such wages relate).
“(4) SECRETARY.—The term ‘‘Secretary’’ means the Secretary of the Treasury or the Secretary's delegate.
“(5) WAGES.—The term ‘‘wages’’ means wages (as defined in section 3121(a) of the Internal Revenue Code of 1986) and compensation (as defined in section 3231(e) of such Code).
“(6) OTHER TERMS.—Any term used in this section which is also used in chapter 21 or 22 of the Internal Revenue Code of 1986 shall have the same meaning as when used in such chapter.
“(d) AGGREGATION RULE.—All persons treated as a single employer under subsection (a) or (b) of section 52 of the Internal Revenue Code of 1986, or subsection (m) or (o) of section 414 of such Code, shall be treated as one employer for purposes of this section.
“(e) CERTAIN RULES TO APPLY.—For purposes of this section, rules similar to the rules of sections 51(i)(1) and280C(a) of the Internal Revenue Code of 1986 shall apply.
“(f) CERTAIN GOVERNMENTAL EMPLOYERS.—This credit shall not apply to the Government of the United States, the government of any State or political subdivision thereof, or any agency or instrumentality of any of the foregoing.
“(g) ELECTION NOT TO HAVE SECTION APPLY.—This section shall not apply with respect to any eligible employer for any calendar quarter if such employer elects (at such time and in such manner as the Secretary may prescribe) not to have this section apply.
“(h) SPECIAL RULES.—
“(1) EMPLOYEE NOT TAKEN INTO ACCOUNT MORE THAN ONCE.—An employee shall not be included for purposes of this section for any period with respect to any employer if such employer is allowed a credit under section 51 of the Internal Revenue Codeof 1986 with respect to such employee for such period.
“(2) DENIAL OF DOUBLE BENEFIT.—Any wages taken into account in determining the credit allowed under this section shall not be taken into account for purposes of determining the credit allowed under section 45S of such Code.
“(3) THIRD PARTY PAYORS.—Any credit allowed under this section shall be treated as a credit described in section 3511(d)(2) of such Code.
“(i) TRANSFERS TO FEDERAL OLD-AGE AND SURVIVORS INSURANCE TRUST FUND.—There are hereby appropriated to the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund established under section 201 of the Social Security Act (42 U.S.C. 401) and the Social Security Equivalent Benefit Account established under section 15A(a) of the Railroad Retirement Act of 1974 (45 U.S.C. 14 231n–1(a)) amounts equal to the reduction in revenues to the Treasury by reason of this section (without regard to this subsection). Amounts appropriated by the preceding sentence shall be transferred from the general fund at such times and in such manner as to replicate to the extent possible the transfers which would have occurred to such Trust Fund or Account had this section not been enacted.
“(j) RULE FOR EMPLOYERS TAKING SMALL BUSINESS INTERRUPTION LOAN.—If an eligible employer receives a covered loan under paragraph (36) of section 7(a) of the Small Business Act (15 U.S.C. 636(a)), as added by section 1102 of this Act, such employer shall not be eligible for the credit under this section.
“(k) TREATMENT OF DEPOSITS.—The Secretary shall waive any penalty under section 6656 of the Internal Revenue Code of 1986 for any failure to make a deposit of any applicable employment taxes if the Secretary determines that such failure was due to the reasonable anticipation of the credit allowed under this section.
“(l) REGULATIONS AND GUIDANCE.—The Secretary shall issue such forms, instructions, regulations, and guidance as are necessary—
“(1) to allow the advance payment of the credit under subsection (a), subject to the limitations provided in this section, based on such information as the Secretary shall require,
“(2) to provide for the reconciliation of such advance payment with the amount advanced at the time of filing the return of tax for the applicable calendar quarter or taxable year,
“(3) to provide for the recapture of the credit under this section if such credit is allowed to a taxpayer which receives a loan described in subsection (j) during a subsequent quarter,
“(4) with respect to the application of the credit under subsection (a) to third party payors (including professional employer organizations, certified professional employer organizations, or agents under section 3504 of the Internal Revenue Code of 1986), including regulations or guidance allowing such payors to submit documentation necessary to substantiate the eligible employer status of employers that use such payors, and
“(5) for application of subparagraphs (A)(ii)(II) and (B) of subsection (c)(2) in the case of any employer which was not carrying on a trade or business for all or part of the same calendar quarter in the prior year.
“(m) APPLICATION.—This section shall only apply to wages paid after March 12, 2020, and before January 1, 2021.”
DELAY OF PAYMENT OF EMPLOYER PAYROLL TAXES
Sec. 2302 of Pub. L. 116-136 provided:
SEC. 2302. DELAY OF PAYMENT OF EMPLOYER PAYROLL TAXES.
(a) IN GENERAL.—
“(1) TAXES.—Notwithstanding any other provision of law, the payment for applicable employment taxes for the payroll tax deferral period shall not be due before the applicable date.
“(2) DEPOSITS.—Notwithstanding section 6302 of the Internal Revenue Code of 1986, an employer shall be treated as having timely made all deposits of applicable employment taxes that are required to be made (without regard to this section) for such taxes during the payroll tax deferral period if all such deposits are made not later than the applicable date.
“(3) EXCEPTION.—This subsection shall not apply to any taxpayer if such taxpayer has had indebtedness forgiven under section 1106 of this Act with respect to a loan under paragraph (36) of section 7(a) of the Small Business Act (15 U.S.C. 636(a)), as added by section 1102 of this Act, or indebtedness forgiven under section 1109 of this Act.
“(b) SECA.—
“(1) IN GENERAL.—Notwithstanding any other provision of law, the payment for 50 percent of the taxes imposed under section 1401(a) of the Internal Revenue Code of 1986 for the payroll tax deferral period shall not be due before the applicable date.
“(2) ESTIMATED TAXES.—For purposes of applying section 6654 of the Internal Revenue Code of 1986 to any taxable year which includes any part of the payroll tax deferral period, 50 percent of the taxes imposed under section 1401(a) of such Code for the payroll tax deferral period shall not be treated as taxes to which such section 6654 applies.
“(c) LIABILITY OF THIRD PARTIES.—
“(1) ACTS TO BE PERFORMED BY AGENTS.—For purposes of section 3504 of the Internal Revenue Code of 1986, in the case of any person designated pursuant to such section (and any regulations or other guidance issued by the Secretary with respect to such section) to perform acts otherwise required to be performed by an employer under such Code, if such employer directs such person to defer payment of any applicable employment taxes during the payroll tax deferral period under this section, such employer shall be solely liable for the payment of such applicable employment taxes before the applicable date for any wages paid by such person on behalf of such employer during such period.
“(2) CERTIFIED PROFESSIONAL EMPLOYER ORGANIZATIONS.—For purposes of section 3511, in the case of a certified professional employer organization (as defined in subsection (a) of section 7705 of the Internal Revenue Code of 1986) that has entered into a service contract described in subsection (e)(2) of such section with a customer, if such customer directs such organization to defer payment of any applicable employment taxes during the payroll tax deferral period under this section, such customer shall, notwithstanding subsections (a) and (c) of section 3511, be solely liable for the payment of such applicable employment taxes before the applicable date for any wages paid by such organization to any work site employee performing services for such customer during such period.
“(d) DEFINITIONS.—For purposes of this section—
“(1) APPLICABLE EMPLOYMENT TAXES.—The term ‘‘applicable employment taxes’’ means the following:
“(A) The taxes imposed under section 3111(a) of the Internal Revenue Code of 1986.
“(B) So much of the taxes imposed under section 3211(a) of such Code as are attributable to the rate in effect under section 3111(a) of such Code.
“(C) So much of the taxes imposed under section 3221(a) of such Code as are attributable to the rate in effect under section 3111(a) of such Code.
“(2) PAYROLL TAX DEFERRAL PERIOD.—The term ‘‘payroll tax deferral period’’ means the period beginning on the date of the enactment of this Act and ending before January 1, 2021.
“(3) APPLICABLE DATE.—The term ‘‘applicable date’’ means—
“(A) December 31, 2021, with respect to 50 percent of the amounts to which subsection (a) or (b), as the case may be, apply, and
“(B) December 31, 2022, with respect to the remaining such amounts.
“(4) SECRETARY.—The term ‘‘Secretary’’ means the Secretary of the Treasury (or the Secretary's delegate).”
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