SBEA Overview
Introduction to Certified PEOs and the Small Business Efficiency Act
The IRS provides a voluntary program through which PEOs can apply for certification, under the Tax Increase Prevention Act of 2014. This act includes within it the Small Business Efficiency Act, or SBEA. A certified PEO under this system is called a CPEO.
Registering as a CPEO provides additional institutional legitimacy to PEOs by requiring them to:
| • | Maintain a bond with the IRS for the year |
| • | Submit annual, independent CPA audits to the IRS |
| • | Submit independently certified, quarterly assertions to the IRS demonstrating payment of employment taxes |
| • | Pay an annual fee to remain certified |
The act also provides benefits for both CPEOs and their clients:
| • | Guarantees that PEO clients still qualify for any applicable federal tax credits |
| • | Removes any federal payroll tax liability from the PEO's clients |
| • | Guarantees that clients are not double-taxed if they join or leave a CPEO mid-year |
| • | Provides the CPEO with a federal tax credit for the SUTA taxes they pay |
SBEA Reporting Requirements
Every year, CPEOs must submit two additional forms to the IRS. These forms detail PEO tax liabilities, broken out client by client:
| • | Form 940 Schedule R: specifies federal unemployment tax (FUTA) |
| • | Form 941 Schedule R: specifies federal income tax, OASDI (Social Security) tax, and Medicare taxes |
For more information about these forms, consult this page on the IRS website.
