ODT issues guidance on PEO fix

Written on Jan 12, 2018

OSCPA staff report

The Ohio Department of Taxation issued an alert this week on a law enacted late last year clarifying that business owners using a professional employer organization (PEO) are eligible for the business income deduction (BID).

Gov. Kasich on Dec. 22 signed Senate Bill 8 into law, addressing what has been a legislative priority for CPAs. The law, which will take effect March 23, applies retroactively to Jan. 1, 2013 when the Small Business Deduction (which later became the Business Income Deduction) was created.

The law amends section 5733.40(A)(7) of the Ohio Revised Code to provide that compensation and guaranteed payments paid by either a pass-through entity, or a professional employer organization (PEO) on the pass-through entity’s behalf, to the owner of the pass-through entity will legally constitute a distributive share of income. OSCPA was a driving force in getting the change enacted.

The Department’s Audit Division had previously suspended audit activities as of Sept. 7, pending the outcome of the legislation.

The Ohio Department of Taxation noted that ownership requirements have not changed. The investor must still directly or indirectly own at least 20% of the entity 1) making the payment or 2) utilizing a PEO to make the payment on its behalf.

Those impacted may choose to:

  • File an original or amended return to apply for a refund;
  • File an application for a refund if an erroneous payment was previously made; or
  • File a petition for re-assessment if an assessment was previously issued by the Department.

Contact OSCPA Tax Policy Director Greg Saul if you have questions.

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