I was speaking with a client the other day when they happen to mention some internal movement of employees they had done over the past few years.    Prior to the move, the client had purchased the stock of several similar employers but retained them as free-standing subsidiaries.    To form better synergies, employees doing the same functions were moved to companies that already existed.   The taxable wage base for the individuals was started over at dollar one for each of these employees, which follows the guidelines of when an employee is moved from one federal identification number to another federal identification number.   The employer had spent millions in restarting the FICA, FUTA, and SUTA taxable wage base as they moved these employees’ mid-way of the year.

Money PotsThe movement of employees were truly partial transfers and were reportable transactions.    Legislation in each state determines if an experience transfer will be processed, and if the transfer of the taxable wage base is allowable.   In some cases, even if the rate experience (history of claims and taxable payroll reported) is not transferred, the taxable payroll reported by a commonly owned employer can be transferred.    Amendments will be filed, resulting in the taxable payroll being overstated.   Refunds and/or credits will be issued in 2018 representing the overpayments.

Another area where employers overstate taxable wages is when an employee is transferred to a different state.  Service representatives and sales personnel often move around the country.   If the employee stays within the same federal identification number, the taxable wage base met in a state can be continued by the employer in the new state.    This is not a reportable transaction such as the partial transfer of employees mentioned above.   A letter explaining the continuation of the wage base may need to be sent to the state in some cases.    If filing electronically, it is sometimes necessary to file the quarterly contribution return and then file an amendment.  Since these individuals are usually high wage earners, the continuation of the FICA, FUTA, and SUTA wage base can prove beneficial.

Many other transactions can occur within the structure of a company.   Most internal transactions do not have a Bill of Sale or Purchase Agreement.    The should always be Notes from the Corporate Meeting or even informal notes that explain why employees are being moved.  Obviously, the reason for moving employees would never be to pay lower taxes, but reasoning could be as simple as aligning benefits or for workmen’s compensation purposes.

Be sure to call your Tax Analyst if you have or have had internal moves that you are unsure if they are a reportable transaction.    We would be happy to discuss tax strategies with you!


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