PEO Tax Benefits: What You Need to Know

Everybody knows taxes can have a big impact on a company’s bottom line. But as a small business owner, you also understand how they can take up precious time, energy, and employee resources.

Luckily, you don’t have to tackle taxes alone. One effective strategy that many businesses are turning to is a partnership with a Professional Employer Organization (PEO). A PEO can provide numerous advantages, particularly in the realm of tax benefits. In this article, we’ll talk about the essential PEO tax benefits you should be aware of and how they can impact your business. 

What is a PEO?

Before diving into the tax benefits, it's important to understand what a PEO is and how it operates. A PEO provides comprehensive HR solutions for small to medium-sized businesses. By entering into a co-employment arrangement, the PEO becomes the employer of record for most payroll tax purposes, while you retain control over business operations and employee management. Think of a PEO as a partner that can take some work—and maybe even stress—off your plate while still leaving you in charge.

The Basics of PEO Benefits

No two PEOs are exactly the same, but many of them offer a wide range of benefits that go beyond handling payroll taxes. These include improved employee benefits, optimized payroll administration, risk management, and help with compliance with employment laws. 

Key Tax Benefits of Using a PEO

When a company partners with a PEO, they receive help taking on the burden of withholding, remitting, and filing payroll taxes. Here’s how it works.

1. Simplified Tax Filings

Complicated tax forms can be a huge drain on your valuable time and energy. One of the major benefits of working with a PEO is the simplification of tax filings. The PEO handles all payroll-related tax filings, including federal, state, and local taxes. This reduces the administrative burden on your business and minimizes the risk of errors in tax reporting. Translation: You can spend less time buried in paperwork—and make fewer mistakes, too.

2. Tax Credits and Incentives

Every penny counts when you’re running a small business, especially where taxes are concerned. At the same time, it can be frustrating and time-consuming to keep track of all the credits and incentives out there. PEOs can help you identify and take advantage of programs that you might otherwise miss, such as tax credits related to hiring veterans or individuals from disadvantaged backgrounds in connection with the Work Opportunity Tax Credit. 

3. Compliance with Tax Regulations

Tax law is complex, and staying compliant with ever-changing tax regulations can be daunting for any business. Make a mistake, and it’ll cost you—literally. That’s why PEOs have payroll tax experts who stay up-to-date with the latest laws and regulations. With a PEO as an employer of record for payroll tax purposes, you can take payroll tax compliance off your mind and sleep better without worrying about costly penalties.

Understanding Co-employment

So how do PEOs provide these benefits, anyway? To answer that, we first need to understand the idea of co-employment. In a co-employment arrangement, the PEO becomes the employer of record for payroll tax purposes. This allows the PEO to handle payroll, taxes, and compliance, while you focus on running your business.

How Co-employment Works

Like the name implies, co-employment is a special type of collaboration. It means that both the business owner maintains certain responsibilities with respect to its workforce while the PEO takes some others off the company’s plate. You maintain control over day-to-day operations, while the PEO manages certain payroll and other functions while providing additional HR support. This model allows businesses to access the PEO's expertise and resources without relinquishing control over their workforce. Of course, not every PEO is created equally, which is why it’s essential to find the one that’s best for your business.

The Long-term Impact of PEO Tax Benefits

In addition to short-term gains, partnering with a PEO can bring long-term positive effects to your business's financial health. By streamlining payroll tax processes, providing access to world-class benefits,  and helping ensure compliance, a PEO can help your business grow more sustainably.

Improved Cash Flow

Cash is king, and with a PEO handling payroll taxes and helping reduce overhead, businesses can experience improved cash flow. This financial flexibility can be reinvested into business operations, driving growth and expansion.

Enhanced Employee Satisfaction

Tax benefits can impact more than just your balance sheet. Offering competitive benefits can lead to higher employee satisfaction. Satisfied employees are more productive and are likely to stay with your company longer, reducing turnover costs. It can be a win-win for you and your team. 

Overall Simplification 

Here's the bottom line: working with a PEO can provide significant tax advantages for anyone looking to streamline operations and reduce costs. By simplifying tax filings and helping ensure compliance, PEOs can help your business achieve financial efficiency and growth. When considering a PEO, it's important to carefully evaluate their experience, services, and reputation to ensure a successful partnership.

By understanding and leveraging the benefits of a PEO, your business can focus on what it does best—growing and thriving in a competitive marketplace.

How Justworks Can Help

Justworks PEO offers a suite of powerful and easy-to-use tools that can help your small business unlock resources and tap into tax benefits. Our team of seasoned experts can help you optimize your tax strategy, from nuts-and-bolts basics (like Employer payroll tax, W-2, and 1099 filings) to compliance and tax credit advice. 

Even better, our tools are backed by 24/7 support from real humans who are always ready to answer your questions. Get started here to find out how Justworks can help your business start taking advantage of PEO tax benefits today.