How Section 199-A Impacts PEOs
The wording of Section 199-A was interpreted by some accountants and tax attorneys to mean that pass-through entities in a PEO arrangement might conceivably jeopardize their eligibility for the 20 percent tax deduction. Because the tax deduction is limited by the amount of W-2 wages paid, the concern/argument is that the only way the client can be certain of this deduction may be to end the PEO relationship and have the W-2 wages reported under the pass-through entities’ tax identification number.
The Final Rule sought by NAPEO and issued by the IRS and Treasury makes it clear that the clients of both certified and non-certified PEOs are eligible for the Section 199-A tax deduction.
Resources on Section 199-A
Final Rulemaking
This document contains final regulations concerning the deduction for qualified business income under section 199A of the Internal Revenue Code (Code).
Section 199-A FAQs
Answers to some frequently asked questions about the federal tax deduction for qualified business income.
Relevant Text to PEOs in the Final Rule
NAPEO believed that under the proposed rule, it was clear that a client employer may take into account W-2 wages paid and reported by a CPEO, but there was some uncertainty with respect to non-certified PEOs.