So, back to our series of tips for managing payroll at year-end. Do you manage more than one entity? Does your firm have more than one Federal ID number (FEIN)?
If so, review any HR transactions that may have transferred employees from one FEIN to another during the year. Why? Because the IRS rules for intercompany transfers can cause you problems if you don’t observe them correctly. Did you know that, as an employer, you are responsible to begin withholding Social Security all over again after a transfer?
If your employee transfers to a new FEIN, then you have to treat that employee as a new hire for Social Security purposes. Start withholding again, even if the employee has already reached the maximum Social Security deduction amount for the year. The employee can take a credit on his or her 1040 for the excess Social Security withheld from his/her pay.
If you find that transfers have been made, verify the cumulative Social Security wages in each FEIN and ensure that the taxable wages and tax are correct on each.
Questions? Leave a comment at the end of this post.