FICA tax

[david rigby]

Company A is a wholly owned subsidiary of B, and has been for several years. On July 1, the employees of A are no longer paid directly by A (using A's EIN), but are paid directly by B (using B's EIN). Should B recognize the year-to-date Social Security earnings and tax already paid by A's employees?

[E as in ERISA]

I believe that related corporations can only do that if they use "common paymaster" rules (which as allow them to avoid double paying the employer's portion twice).

[JanetM]

Pax,

our payroll dept. says the rule of thumb is if there is more than 25% common ownership you should transfer the wage bases over.

[mbozek]

see IRC 3121(a)(1). Successor employer who acquires substantially all property of a trade or business of a predecessor employer or used in separate unit can aggregate SS wages of predecessor with wages paid by successor employer.

[Just Me]

The key factor in determining whether or not FICA tax restarts is which entity is the employee's common law employer and whether or not that has changed under your fact scenario. You seem to indicate in your facts that the employee provides services for company A (presumably whom, under the common law 20 factor test, controls the employee) -- if that has not changed, FICA does not restart.

A mere change in wage payer shifts the responsibility from one company to the other for withholding and paying over the tax, but does not require that the payers disaggregate their wages for purposes of determining wages for FICA tax purposes.

Check out TAM 199918056 which covers this issue.