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© 2021 American Payroll Institute, Inc. APA Asks IRS to Resolve Common Pay Agent Problem 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. Thus, employees requesting a refund of social security tax from the IRS are incorrectly referred to their employers to fix the problem. Description of the problem When employers pay employee wages through multiple legal entities, they either make an arrangement using Form 2678, Employer/Payer Appointment of Agent, (common pay agent) or Form 8973, Certified Professional Employer Organization/Customer Reporting Agreement. This arrangement allows the agent or certified professional employer organization (CPEO) to file employment tax returns, initiate backup withholding, and withhold and deposit employment taxes on a consolidated basis for multiple employers using the appointed agent’s FEIN. 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 ($142,800 for 2021). The responsibility to identify overwithheld social security taxes falls to the employees, who must ask for a refund using Form 1040, U.S. Individual Income Tax Return. 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. In the General Instructions for Forms W-2 and W-3, under “Agent reporting” in “Special Reporting Situations for Form W-2,” a common pay agent should enter in Box c: the “(Name of agent), Agent for (name of employer), and Address of agent.” The common pay agent information appears as an extension of employer contact information, and multiple forms still use the same FEIN. The agent reporting instructions also are not identified on the form, the title of Box c, or the instructions on the form itself. As a result, the form appears to show a single employer, so the employee is denied a refund from the IRS. APA’s recommendations The APA recommended that the IRS create a checkbox on Form W-2 employers can use to indicate agent reporting arrangements. For example, a checkbox could be added to the top of Box c, immediately after ZIP code, with instructions on when to check the box. Also, the IRS could add a box on Form W-2 to identify actual common law employer FEINs to clarify the identity of both the employer and the third-party agent. The APA also recommended that the IRS allow payroll practitioners better access to employment tax data, such as eliminating the need for inclusive tax periods to access Form 941, Employer’s Quarterly Federal Tax Return, Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, and employment tax data on Form 2848, Power of Attorney and Declaration of Representative, and Form 8821, Tax Information Authorization. Further, the IRS should enable its Transcript Delivery System (TDS) to sync with individuals who have properly executed Forms 2848 or Forms 8821. The TDS website suggests that individuals with these forms on file may access the system to obtain information, but this is not accurate as IRS Advisory Council participants and APA members have expressed. APA Responds to New Biometric Privacy Law in Baltimore, Maryland The APA Government Relations Task Force State and Local Topics Subcommittee contacted the city of Baltimore, Md., to seek clarification on a biometrics ordinance, as well as to offer solutions to potential issues created by the ordinance. Ordinance 21-0001, which was passed by the Baltimore City Council on June 14, 2021, takes aim at biometric surveillance technology by prohibiting its implementation except in specific cases within the city. As the number of employers implementing biometric systems grows, the restriction or prohibition of these systems poses significant risk. Biometrics in payroll Employers install biometric time clocks to create accurate and convenient systems to track hours worked while increasing employee and employer accountability. The utility of biometric August 2021 – A Supplement to Payroll Currently, Issue 8, Volume 29