Mid-Year Corporate Structure Changes and Taxable Wage Bases

Corporate structure changes occur for a variety of reasons and generally are prompted by corporate tax reduction opportunities.  Since unemployment tax is often considered a “payroll” tax as opposed to a corporate tax, responsibility is often in a separate team, such as the Payroll Department.  As with any corporate change, there are competing demands and commitments for each of these two teams, so occasionally, unemployment tax is not considered in the mix and may lead to unnecessary tax increases.

When corporate structure changes occur during the middle of the year rather than on January 1, opportunities exist to transfer the taxable wages and taxes that were previously paid under the predecessor account from January 1 through the effective date of the transaction.  However, oftentimes, employers are either unaware of this option, or they are unable to easily transfer the previously taxed wages from the predecessor’s payroll.  In that instance, a retroactive amendment is possible after the fourth quarter unemployment tax filing due by January 31 of the following year.

To provide an example, assume Company A is purchased and merged into Company B effective July 1.  Company A would have filed quarterly contribution reports and paid taxes on all of its employees for the first and second quarters of that year.  When Company B merges Company A into its structure it moves all of the employees from Company A under the new Federal Identification Number for Company B and therefore files quarterly contribution reports and pays taxes on them for the third and fourth quarters of that same year under Company B.  If Company B does not take credit for taxes previously paid, it will have overpaid taxes for the remaining two quarters.

In many states, if certain statutory requirements are met when the unemployment rate transfer occurs, Company B can take credit for unemployment taxes paid on the wages earned by Company A in the first two quarters of the year.  There are even a few states which will allow Company B to take credit for unemployment taxes paid on the wages earned by Company A if the unemployment tax rate experience is not transferred. Federal taxes also present an opportunity for recoupment of overpaid taxes.

To obtain a refund of overpaid taxes, the employer must calculate the overpayment of taxes on each individual and then, complete an amended quarterly contribution report to the applicable jurisdiction for the affected quarters.  Some of the jurisdictions may even request the list of names, Social Security Numbers, and amended wages for the affected employees.

Payroll teams today are strapped for resources, so they do not always have the bandwidth to complete the necessary calculations and amendments which can be complicated and time-consuming.  Follow up with the jurisdictions once the amendments have been filed can add to the time commitment and frustration level.  Your CCC Tax Analyst is skilled in the calculation and preparation of these refund opportunities.  If you believe you may have historically not taken advantage of the option to transfer credit for taxes previously paid, please contact Wayne Rottger, Director of Tax at wrottger@corporatecostcontrol.com or your CCC Tax Analyst for additional information.


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