Third Party Payroll Error Rules

Full Title:
To amend the Internal Revenue Code of 1986 to establish procedures relating to the attribution of errors in the case of third party payors of payroll taxes, and for other purposes.

Summary#

This bill adds a new section 3513 to the Internal Revenue Code. It sets rules for how errors are attributed when a third party payor handles payroll taxes. A third party payor may rely on an employer's certification unless the payor had "constructive knowledge" of an error. The bill defines constructive knowledge and when a payor is treated as not having it for payroll tax credits. It says who is liable when there is an error: if the payor had constructive knowledge, the employer is responsible and the payor is responsible only for the part tied to the payor's known error; if the payor did not have constructive knowledge, the employer is solely responsible. "Liability" includes tax amounts due, interest, and penalties. The bill prevents the Secretary from delaying a payroll tax credit or starting an audit of an employer solely because a third party payor filed an erroneous return in reliance on another employer's certification. The Secretary may require third party payors to provide records the employer could provide. The rules apply to audits, examinations, and assessments started after enactment.

What it means for you#

  • Employers: You stay responsible for payroll tax errors in certifications you make. If a third party payor did not know about an error, you are solely liable.
  • Third party payors (for example, fiduciaries, agents, professional employer organizations, and certified PEOs): You can generally rely on employer certifications and avoid liability unless you knew or should have known of an error. For payroll tax credits you will be treated as not having constructive knowledge if the certification says the employer is entitled to the credit, you accurately reported the credit per the employer's information, and you verified aggregate wages before claiming the credit.
  • IRS actions and records: The IRS may not delay processing a payroll tax credit or audit an employer just because a third party payor filed an erroneous return relying on another employer's certification. The IRS can require payors to provide records the employer could provide.

Expenses#

No publicly available information on costs, revenue effects, or budget estimates is included in the bill text. The bill does state that "liability" includes amounts due, interest, and penalties.

Proponents' View#

No publicly available information in the bill text about proponents' stated views.

Opponents' View#

No publicly available information in the bill text about opponents' stated views.