How to record PEO THIRD PAYER ARRENGEMENT IN 1120s

Forum|Forum|3 years ago
March 3, 2023
4 replies
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HOW TO RECORD Third Party Payer Arrangements – Professional Employer Organizations

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dascpa

Level 11

It is reported as an other non-wage expense in both cost of sales and regular expenses. This is important as without wages there is (a) an appearance flag, (b) effect on QBI, (c) if the stockholder is also part of the PEO a real issue (I have one) of reasonable compensation as well as the IRS has problems with this as the person who controls the business cannot be a leased person, (d) issue with S corp health insurance for the stockholder if no wages present, (e) issues with retirement plans [if the PEO doesn't have one] because no wages are reported.

J

JP2016

Level 2

Thanks for your response, according to your experience since it would be reported as Other Cost of Sales what happens to the salary wages paid to the owners of the company (Client) by the PEO Organization would you separate them or include them in the Other Cost of Sales? The owners are not part of the PEO company itself, they just hired them.

I really appreciate if you can share your opinion

dascpa

Level 11

If the PEO is paying wages to the owners this needs to stop. Please Google this. Way too many problematic issues to deal with.

But for reporting purposes whether you list it in COGS or Other Expenses it is irrelevant to the bottom line. It's just classification. I've seen titles such as PEO Paid Labor as an example of one title.

Remember, do NOT put any PEO onto any salary line (officer or other) as then the IRS will not be able to match it to any W-2's. Your client never issued any W-2's, the PEO did.

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