What happens to my personal taxes if my employer switches to a PEO mid-year?

A question that comes up every now and then is “my employer changed to PEO, a professional employer organization, mid-year, how does that affect my personal taxes and  W2s?” The answer is, it is not that complex.

What happens if my employer changes to a PEO mid-year? 

  • You (the employee) will receive two W2s
  • You should receive a W2 from your company via the payroll provider your company previously used
  • Then you’ll receive a W2 directly from your PEO

It would help if you received a W2 from your company via the payroll provider you used. Many companies are on Gusto, Rippling, or Intuit payroll. 

When you go to a PEO, a professional employment organization, you technically work for the PEO and have a side relationship with your startup. PEOs pool all the employees from the startups they partner with and get significant healthcare benefit costs. They are able to pull everything and have better negotiations. So technically, you work for that PEO. So you will also get a W2 for the second half of the year wages directly from the PEO, and it will come from the PEO, not your company. 

To recap, you should get two W2s - one from the payroll provider that your employer used for the first half of the year, and then one from the PEO.W2s are the statement that tells you what you made, what your gross wages were, and all the deductions like 401k

So, if your company switched to a PEO, and you only got one W2, you need to look at it and figure out who it came from, your old payroll provider or your new PEO.

You will want to make sure you get a second W2. So you can fill out your taxes correctly. Many people think if they don’t get a W2 or 1099, they don’t have to declare those wages or payments on their taxes. 

But guess what? 

The IRS gets notified differently and knows that you didn’t declare. They will find and audit you eventually. Even if you don’t get the W2 because of a paperwork problem, or you don’t get 1099 due to a paperwork problem, you still need to declare all the earnings on your tax return.  

As always, if you have any questions, feel free to reach out to us. We’d be happy to help.