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APA Asks IRS to Resolve Common Pay Agent Problem

BY: Mike Linehan | 08/24/21

The APA offered recommendations to the IRS to resolve a problem that can arise when the use of a single federal employer identification number (FEIN) for multiple employers in common pay agent situations results in an erroneous refund of social security tax. The required use of a shared FEIN on multiple Forms W-2, Wage and Tax Statement, from separate employers often appears to show a single employer overwithheld social security taxes within the same calendar year.

Employers must issue employees separate Forms W-2 if wages are distributed through multiple legal entities, even though taxes are reported under one FEIN. Because each entity must separately track employees’ wages against the social security wage base without regard to wages paid by other entities, employees may have had social security tax withheld when they are paid in excess of the annual social security wage base.

The responsibility to identify overwithheld social security taxes falls to the employees to ask for a refund on their Form 1040. The use of a single FEIN often results in the IRS denying employees the refunds owed, and the IRS sending notices informing employees to obtain refunds from their employers.

The IRS’s agent reporting process does not resolve the problem of refunding excess social security taxes paid. As a result, the form appears to show a single employer, so the employee is denied a refund from the IRS.

Solutions Offered by the APA

The APA recommended that the IRS create a checkbox on Form W-2 employers can use to indicate agent reporting arrangements. The APA also recommended that the IRS allow payroll practitioners better access to employment tax data. Further, the IRS should enable its Transcript Delivery System (TDS) to sync with individuals who have properly executed Forms 2848 or Forms 8821.

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Mike Linehan is the Assistant Manager of Government Relations for the APA.