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IRS : form 2678 Employer/Payer Appointment of Agent

For the past years the we have filed all of our payroll under one EIN even though we have two EINS. We have permission from the IRS to do this but we have received communication from the state Workforce in the recent months that we are now requiring the unemployment filings to be made under each EIN. We have filed the form 2678 Employer/Payer Appointment of Agent to revoke the agent’s appointment to file since 2017 but we have not received words from the IRS.

Basic question – can we build the new EIN and move the appropriate employees so that they are all being paid under the correct EIN without permission from the IRS or does that form need to be filed and approved before we break everything out? Thanks!

Comments

  • David WarrenDavid Warren ✭✭✭✭

    This is a Pat Haggerty type of question.

  • I am not clear, did you move all your employees into one EIN?
    When we filed under common the employees were assigned to separate EINs (the company in which they were hired). We did file one consolidate return (eg: 941 & 940). We were not allowed to file Unemployment under agent status. Things may have changed since then.
    Per IRS: "common pay agent" means an independent third party who contracts with, and represents, two or more employers, and who files a combined tax report for those employers. The operative words are "combined tax report for those employer". The third party is miss leading. An employer with multiple EINs would be considered the 3rd party who is applying for the agent status.

  • State workforce reporting requirements would not be governed by Federal Form 2678 unless the state agrees to combined reporting. The SUTA rate calculations would be employer specific and the state would be concerned about SUTA dumping (moving employees to a different EIN to avoid higher SUTA tax rates. Also, Form 2678 cannot be used for aggregate Form 940 (FUTA) reporting unless the agent is an agent for a home care service recipient.

    The agent uses Schedule R to allocate the tax items to the client employer's EINs as part of an aggregate Form 941 - So the information is being reported for each separate EIN even though there is only one Form 941.

    Note this is NOT the same a "common paymaster". Common paymaster applies with an employee works simultaneously for two or more related parties.

    I also was a bit confused about the "filed all of our payroll under one EIN even though we have two EINS" and "can we build the new EIN and move the appropriate employees so that they are all being paid under the correct EIN" -- If you have two employers, you should be reporting wages under two EINs (on Sch R Form 941) on the aggregate Form 941. It sounds as if the "agent" in this case was reporting the employees of both companies as if they were all employed by the agent. The agent should have reported the wages and taxes of its own employees on the 941 as well as the wages and taxes of the employees of its client employer but allocated the wages and taxes of the client employer employees to the client employer on Sch R. See Rev. Proc. 2013-39
    https://www.irs.gov/irb/2013-52_IRB#RP-2013-39

  • Our company uses this structure as well as we have around 30 entities that we file under our 2678 status. I believe that this status used to also allow employers (or agents) to carryover the Social Security tax base when transferring employees from one entity to another within that same agent....however I think this is no longer the case. Does anyone know about this provision and if it is still a valid method for ensuring employees are not overpaying their social security when transferred from one entity to another?

  • For those who are interested - in particular P002797D - see .04 and .05 below
    Excerpt from Rev Proc 2013-39
    SECTION 4. FILING OF RETURNS BY AGENT WITH APPROVED FORM 2678
    .01 The agent with an approved Form 2678 is required to file one return for each tax-return period reporting the wages and employment taxes on the wages paid to its employees, and the wages and employment taxes on the wages paid by the agent to the employees of each employer for whom the agent is authorized to act (“aggregate return”).

    .02 The agent’s name and EIN are entered in the spaces provided for the employer on the returns, and the returns are to be executed in accordance with the form instructions.

    .03 The agent must complete an allocation schedule and attach it to each aggregate return as described in the form instructions. On the allocation schedule, the agent lists the name and EIN of each employer for whom the agent is authorized to act and allocates the wages, taxes, and payments reported on the aggregate return to each employer. For example, the IRS has designated Schedule R (Form 941), Allocation Schedule for Aggregate Return Filers, as the allocation schedule to attach to an aggregate Form 941. The agent is responsible for maintaining records that show the wages paid by the agent to each employee on behalf of, and identified by, each employer for whom the agent is authorized to act. The employer is responsible for maintaining records that show the wages paid by the agent to its employees. See §§31.6001–1 through 31.6001–5.

    .04 The wages paid to an employee are considered with respect to each employer separately, and not in conjunction with the wages paid to the employee by the agent as employer or by the agent on behalf of any other employer, for purposes of any dollar threshold or wage base applicable in determining the employment tax liability.

    .05 Generally, the agent furnishes and files one Form W-2, Wage and Tax Statement, for each employee. The agent’s EIN is entered in the spaces provided for the employer. The name of the agent, followed by “Agent for (name of employer),” is entered in the space provided for the employer. If the agent (a) is acting as an agent for two or more employers or is an employer and is acting as an agent for another employer, (b) pays social security wages to an individual on behalf of more than one employer, and (c) the total of the individual’s social security wages from these employers is greater than the social security wage base, the agent furnishes and files separate Forms W-2 for the affected employee reflecting the wages paid by each employer.

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