Mid-Year Tax Credit Handling in PEOs
When evaluating a PEO, understanding how they handle tax credits is a crucial part of the process. One key aspect many businesses overlook is how a PEO manages
mid-year tax credit handling.
Here’s why it’s important and what you need to look for.
1. Will the PEO credit your prior FICA taxes (Social Security & Medicare)?
One of the main benefits of working with a PEO is that they can potentially credit your prior FICA taxes. If you are transitioning to a PEO in the middle of the year, it’s essential to verify that the PEO will apply the credit for the Social Security and Medicare taxes you’ve already paid. This ensures you won’t end up paying these taxes twice.
2. Will the PEO honor SUTA (State Unemployment Tax) already paid?
State Unemployment Tax (SUTA) is another important tax to consider. If you start working with a PEO mid-year, it’s essential that the PEO honors the state unemployment taxes you’ve already paid. This prevents you from being double-taxed on those same wages. Make sure to ask how the PEO handles this situation.
3. Can they prevent you from double taxation if starting midyear?
It’s easy to assume that a PEO will automatically handle double taxation if you join midyear, but it’s always best to confirm this in writing. A reliable PEO should have systems in place to prevent double taxation, ensuring that you’re not paying more than necessary to the IRS or state authorities.
Tax credit handling can make or break the financial efficiency of your business, especially during mid-year transitions. Make sure your PEO has the necessary processes in place to avoid any costly mistakes.
Pro Tip:
There are over 600 PEOs nationwide. Work with a PEO Broker (like us!) to get side-by-side comparisons and unbiased guidance—at no cost to your business.
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