Yes, if an Eligible Employer is otherwise eligible to receive the credits, it (the common law employer) is entitled to the credits, regardless of whether it uses a third party payer (such as a professional employer organization (PEO), certified professional employer organization (CPEO), or agent) to report and pay its federal employment taxes. The third party payer is not entitled to the credits with respect to the wages it remits on the Eligible Employer’s behalf (regardless of whether the third party is considered an “employer” for other purposes of the Internal Revenue Code (the “Code”)). If an Eligible Employer uses a third party to file, report, and pay federal employment taxes, certain rules for claiming/reporting the credits will apply depending on the type of third party payer the Eligible Employer uses.
If an Eligible Employer uses a CPEO or a 3504 agent to report its federal employment taxes on an aggregate Form 941, Employer’s Quarterly Federal Tax Return, the CPEO or 3504 agent will report the credits on its aggregate Form 941 and Schedule R, Allocation Schedule for Aggregate Form 941 Filers, that it already files. An Eligible Employer can submit its own Form 7200, Advance of Employer Credits Due To COVID-19, to claim the advance credit. The Eligible Employer will need to provide a copy of the Form 7200 to the CPEO or 3504 agent so the CPEO or 3504 agent can properly report the credit on the Form 941.
If an Eligible Employer uses a non-certified PEO to report and pay its federal employment taxes, the PEO will need to report the credits on an aggregate Form 941 and separately report the credits allocable to the employers for which it is filing Form 941 on an accompanying schedule R. The PEO does not have to complete Schedule R with regard to employers for which it is not claiming a credit. The Eligible Employer will need to provide a copy of any Form 7200 that it submitted for an advance to the PEO so it can properly report the credit on the Form 941. These rules are similar to the rules that apply with regard to the payroll tax election available under section 41(h) of the Code for the credit for certain research and development expenses.