Expert: Shirley McAllister, CPP, PHR - 4/22/2011

Question
QUESTION: When a common pay agent is approved by the IRS and an employee transfers from one company to another mid year with both companies under the common pay agent FEIN, the social security wages can transfer with the employee and do not need to be reset to zero after the transfer to another company under the common pay agent.  If this is correct, could you please provide the IRS regulation procedure?

ANSWER: This is explained in publication 15-A

http://www.irs.gov/publications/p15a/ar02.html#en_US_publink1000169608

There is a common paymaster and there is a pay agent. They are not the same thing.

Both are mentioned in publication 15-A and more information can be found on IRS.gov.

You can read the actual statute of Sec. 31.3121(s)-1 at the following website:

http://www.taxalmanac.org/index.php/Treasury_Regulations%2C_Subchapter_C%2C_Sec.

Shirley

---------- FOLLOW-UP ----------

QUESTION: Thank you for the references and information.  The agreement with the IRS is on Form 2678 Employer Appointment of Agent and we have selected Form 941.  The common pay agent is under section 3504 of the Code and common paymaster under section 3121(s) and 3306(p) of the code.  The references I have found for common pay agent are Rev. Proc. 70-6, 1970-1 C.B. 420, publication 1271 (5-85).  My understanding is that with a common pay agent the wages would be transferred to a second company with the common pay agent FEIN and any social security wages and tax would transfer to the second company included in the common pay agent FEIN during the year without have to restart the FICA tax at zero.  I want to ensure that I understand the regulations and differences between common pay agent and common paymaster as we have a common pay agent agreement.

Answer
I am most familiar with the common paymaster.

Here are the rules forbthe paymaster and pay agent.

http://www.irs.gov/pub/lanoa/pmta00196_6988.pdf

I do know how the pay agent needs to fill out the W-2 forms for the employees for which he is reporting:

The pay agent filed under form 2678 has speical form W-2 reporting rules.
The agent enters his name as the emloyer in Box C and filess one form W-2 for each employee. However, if the agent:
1) is acting as an agent for 2 or more employers or is an employer itself and is acting as an agent for another employer and
2) pays social security wages for more than one employer in excess of the social security wage base to an employee
The agent must file separate forms W-2 showing the wages paid by each employer to the employee. On each form W-2 the agent should put iits EIN in box b. THe meployer's EIN should be shown in box h of form W-3 if the forms W-2 relate to only one employer (other than the agent); if not, leave the box blank. In box C of each form W-2 the agent should enter the following:
Name of agent
Agent for (name of employer)
Address of agent.

Shirley