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.
- Bill Number
- H.R. 3223
- Origin Chamber
- House
- Congress
- 119th Congress, Session 1
- Policy Area
- Taxation
- Status
- Introduced
- Latest Action
- 2025-05-06: Referred to the House Committee on Ways and Means.
- Last Updated
- 2026-07-10T08:06:11Z
AI-Generated Summary
Purpose
This bill aims to protect third-party payors (entities that handle payroll taxes on behalf of employers) from full liability when they rely on employer-provided certifications that contain errors, as long as they lack knowledge of those errors. It establishes clear rules for attributing responsibility for mistakes in payroll tax reporting and credits.
Key Provisions
- Reliance on Certifications: Third-party payors can trust certifications (such as representations or attestations) from employers when fulfilling payroll tax duties, unless they have "constructive knowledge" of an error. Constructive knowledge means the payor knew or reasonably should have known about the mistake.
- Liability Rules:
- If the payor has constructive knowledge of an error, the employer is fully responsible, but the payor is liable only for the portion of the error they knew about.
- If the payor lacks constructive knowledge, the employer bears all liability for any taxes, interest, or penalties owed.
- Protections for Processing and Audits: The IRS cannot delay processing payroll tax credits claimed by a third-party payor or start an audit of an employer just because the payor filed an erroneous return based on another employer's faulty certification.
- Record-Keeping: The IRS can require third-party payors to share any employer-related information they hold, similar to what it could demand directly from the employer.
- Safe Harbor for Payroll Tax Credits: For credits (reductions in taxes owed), a payor is not deemed to have constructive knowledge if:
- The employer's certification states eligibility for the credit.
- The payor accurately reports the credit based on that certification.
- The payor verifies the total wages paid before claiming the credit.
- Definition of Third-Party Payor: Includes fiduciaries, agents (as defined in existing tax law), professional employer organizations (PEOs), and certified PEOs—entities that manage payroll for multiple employers.
The changes apply to IRS audits, examinations, and assessments starting after the bill's enactment.
Significant Changes to Existing Law
This bill adds a new section (3513) to the Internal Revenue Code of 1986, which previously lacked specific procedures for handling errors in third-party payroll tax handling. It shifts some liability protections toward third-party payors, clarifying that they are not automatically responsible for employer errors and providing a "safe harbor" (a set of conditions that shield them from penalties) for certain tax credits. This formalizes reliance on employer certifications and limits IRS actions based on isolated errors.
Potential Impacts
- Government Agencies: The IRS may face streamlined processing of tax credits and restrictions on initiating audits, potentially reducing administrative workload but requiring better verification of third-party records. No direct impact on international relations.
- Citizens and Businesses: Employers remain primarily accountable for their mistakes, which could encourage accurate reporting. Third-party payors gain liability protections, making outsourced payroll services more reliable and cost-effective for small businesses. Overall, it may reduce disputes and penalties in payroll tax compliance, benefiting workers indirectly through smoother tax handling.
- Broader Economy: Could promote the use of professional employer organizations, helping small employers manage complex payroll taxes without as much personal risk.
Main Stakeholders Affected
- Employers: Bear most liability for certification errors, but benefit from faster IRS processing of credits.
- Third-Party Payors (e.g., PEOs, agents, fiduciaries): Receive protections against undue liability and audits, encouraging their role in payroll management.
- IRS and Treasury Department: Must adapt audit and examination practices to respect the new rules on error attribution and record access.
- Businesses and Taxpayers: Small and medium-sized enterprises outsourcing payroll are primary beneficiaries, as the bill reduces risks in using these services.
Notable Legal, Constitutional, or Political Implications
- Legal: Clarifies liability under tax law, potentially reducing court cases over payroll errors by providing clear attribution rules. It builds on existing provisions (e.g., section 3504 for agents) without overriding them, promoting fairness in third-party arrangements.
- Constitutional: No apparent issues; it aligns with Congress's authority to regulate taxation and does not infringe on due process or equal protection, as it treats similar entities consistently.
- Political: Bipartisan introduction (by Rep. Thompson, D-CA, and Rep. Van Duyne, R-TX) suggests broad support for easing burdens on businesses. It could influence future tax policy by favoring outsourced services, but raises no major controversies in the bill text.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Cosponsors (22)
Rep. Van Duyne, Beth [R-TX-24], Rep. Panetta, Jimmy [D-CA-19], Rep. Buchanan, Vern [R-FL-16], Rep. Sewell, Terri A. [D-AL-7], Rep. Davis, Danny K. [D-IL-7], Rep. Yakym, Rudy [R-IN-2], Rep. Hern, Kevin [R-OK-1], Rep. Miller, Max L. [R-OH-7], Rep. Sánchez, Linda T. [D-CA-38], Rep. Moran, Nathaniel [R-TX-1], Rep. DelBene, Suzan K. [D-WA-1], Rep. Schneider, Bradley Scott [D-IL-10], Rep. Nunn, Zachary [R-IA-3], Rep. Tenney, Claudia [R-NY-24], Rep. Steube, W. Gregory [R-FL-17], Rep. Suozzi, Thomas R. [D-NY-3], Rep. Boyle, Brendan F. [D-PA-2], Rep. Horsford, Steven [D-NV-4], Rep. Houchin, Erin [R-IN-9], Rep. Moore, Blake D. [R-UT-1], Rep. Bean, Aaron [R-FL-4], Rep. Perez, Marie Gluesenkamp [D-WA-3]
Recent Actions
- 2025-05-06: Referred to the House Committee on Ways and Means.
- 2025-05-06: Introduced in House
- 2025-05-06: Introduced in House
Bill Versions
- 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. — issued 2025-05-06 — PDF (4 pages)