How does tax reporting work with a PEO?

The PEO agreement indicates which employment tax withholding, reporting and payment the PEO is responsible for on behalf of the client. PEOs pay client employees and employment taxes with funds from the client, and file employment tax returns for the client using the PEO’s EIN.

Certified PEOs are solely responsible for federal tax liability and penalties, as the employer of record, and are required to post a bond each year of up to $1 million guaranteeing payment of its federal employment tax liabilities. Using a certified PEO greatly reduces client risk in the event of non-compliance. If a company uses a non-certified PEO that doesn’t pay their taxes, the company could be liable.