To amend the Internal Revenue Code of 1986 to establish procedures relating to the attribution of errors in the case of third party payors of payroll taxes, and for other purposes.
Sponsored By: Representative Thompson (CA)
Introduced
Summary
Limits third-party payroll processor liability when they reasonably rely on employer certifications. This bill would create a new tax-code rule that decides who is on the hook for payroll tax mistakes and when a third-party payor must share blame. It defines key terms, sets a "constructive knowledge" standard, creates safe harbors for payors, requires records, and limits certain enforcement actions by the Secretary of the Treasury.
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- Employers: If a third-party payor relied on an employer's certification and did not have constructive knowledge of an error, the employer would remain solely responsible for any payroll tax amounts, interest, and penalties tied to that error.
- Third-party payors (including fiduciaries, agents, professional employer organizations, and certified PEOs): Payors would be able to rely on employer certifications and qualify for a safe harbor if they accurately reported credits per the employer's information and verified aggregate wages before claiming credits. If a payor had constructive knowledge of an error, it would only be liable for the portion connected to that knowledge.
- Tax administration: The Secretary could still require payors to provide employer-related information. The Secretary would be prohibited from delaying payroll tax credits or opening audits solely because a payor claimed a credit based on another employer's certification.
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Bill Overview
Analyzed Economic Effects
2 provisions identified: 0 benefits, 0 costs, 2 mixed.
Liability rules for payroll tax services
If enacted, new rules would set who pays when a payroll tax filing is wrong. Payroll providers (like PEOs and agents) could rely on an employer's certification unless they should have known it was wrong. If the provider lacked constructive knowledge, the employer would owe the full bill; if it had constructive knowledge, the provider would owe only the part it knew was wrong. For payroll tax credits, a provider would be treated as not knowing an error if three steps are met: the certification says the employer qualifies, the provider reports exactly as certified, and it verifies total wages used before filing. Liability would include the tax, plus interest and penalties.
Audit limits and record duties for payors
If enacted, the IRS could not delay a payroll tax credit or start an audit of an employer solely because a payroll provider filed an erroneous return while relying on another employer’s certification. The IRS could still require payroll providers to give employer records it could also require from the employer. These rules would apply to audits, exams, and assessments started after enactment.
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Sponsors & CoSponsors
Sponsor
Thompson (CA)
CA • D
Cosponsors
Van Duyne
TX • R
Sponsored 5/6/2025
Panetta
CA • D
Sponsored 6/4/2025
Buchanan
FL • R
Sponsored 6/5/2025
Sewell
AL • D
Sponsored 6/26/2025
Davis (IL)
IL • D
Sponsored 9/8/2025
Yakym
IN • R
Sponsored 9/8/2025
Hern (OK)
OK • R
Sponsored 9/10/2025
Miller (OH)
OH • R
Sponsored 9/10/2025
Sanchez
CA • D
Sponsored 10/3/2025
Moran
TX • R
Sponsored 10/3/2025
DelBene
WA • D
Sponsored 10/3/2025
Schneider
IL • D
Sponsored 10/3/2025
Nunn (IA)
IA • R
Sponsored 10/3/2025
Tenney
NY • R
Sponsored 10/31/2025
Steube
FL • R
Sponsored 11/17/2025
Suozzi
NY • D
Sponsored 11/19/2025
Boyle (PA)
PA • D
Sponsored 12/18/2025
Horsford
NV • D
Sponsored 12/18/2025
Houchin
IN • R
Sponsored 3/27/2026
Roll Call Votes
No roll call votes available for this bill.
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