IRS firms up consent rules for FICA refunds
The IRS has issued a final revenue procedure that covers how to obtain employees’ consent before you refund overwithheld FICA taxes to them. The IRS made only minor changes to the procedure it proposed in 2015.
What’s new: You may truncate employees’ Social Security numbers (SSNs), but only if you prepopulate your consent forms with those truncated SSNs.
This revenue procedure applies to employees’ consent requested on or after June 5, 2017, but you don’t have to resolicit employees for pending refunds and you can rely on the proposed procedure until June 5. (Rev. Proc. 2017-28, IRB 2017-14)
They get theirs before you get yours. You usually can’t receive a refund of the employer’s share of overwithheld FICA taxes until you refund employees their share of the overwithheld taxes or obtain their consent to pursue refunds on their behalf. Key: These rules don’t apply to refunds of overwithheld additional Medicare taxes.
You may solicit employees’ consent on paper or electronically. Employees have at least 45 days from the date of your solicitation to respond. Employees may be told that if they don’t return their consent, they’ll be considered to have refused to provide consent. Warning: Their failure to respond is considered a refusal to consent. You may include a request that employees keep you informed if they move or change their email addresses.
Exceptions to these rules apply if, after a reasonable effort, you can’t find long-gone employees or employees refuse to grant you consent to pursue refunds on their behalf.
What’s reasonable: You will be considered to have made a reasonable effort if an employee is required to acknowledge receipt of an email request, by, for example, clicking a “Yes” button (read-only receipt messages aren’t acceptable) and you keep records of your request. If mail is returned to you as undeliverable, make a good faith attempt to determine employees’ current addresses and mail your request there.
WAIT ANOTHER 21 DAYS: You must wait at least 21 days from the date you mail your second request. If employees fail to acknowledge your email request, mail them a paper consent and give them 21 days to respond. If they don’t respond, then you can write them off.
Valid consents. In addition to including your name, address and Employer Identification Number, employees must provide their names, addresses and SSNs. A valid paper or electronic consent must include the following elements:
- It must identify the tax period(s), the type of tax, the amount of the refund and the basis of the claim.
- It must clearly inform employees of the purpose of their consent, and you must provide the name and contact information of a person who can answer employees’ questions.
- It must clearly state that you will repay or reimburse employees for their share of the FICA overpayment (plus interest allocable to their share) or that employees are authorizing you to pursue refunds on their behalf.
- It must contain employees’ statements that they haven’t filed or will file for a refund, if the claim relates to overwithheld FICA taxes that were collected in a prior year.
- It must be dated and signed under penalties of perjury; the perjury statement must appear immediately above the signature line.
- Employees may (but can’t be required to) provide their consent electronically under rules that are similar to the rules that apply to electronic W-4 forms.