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When a business withholds social security on employees beginning in January and then gets bought out by another company (but no change in employees) who has a new ID#, can the payroll department beginning say in February give credit to each employee for amount withheld in January by the old company or must it start at zero for purposes of determining the maximum SS withholding for the year? Some employee salaries will far exceed the maximum amount of earnings subject to SS tax. Obviously, if they are not granted credit, some employees will have over withheld SS taxes that will have to be returned when they file next year.


rickisme
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Check out Publication 505: Tax Withholding and Estimated Tax, starting under Salaries and Wages -- New Job, pg. 4.
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<<When a business withholds social security on employees beginning in January and then gets bought out by another company (but no change in employees) who has a new ID#, can the payroll department beginning say in February give credit to each employee for amount withheld in January by the old company or must it start at zero for purposes of determining the maximum SS withholding for the year? Some employee salaries will far exceed the maximum amount of earnings subject to SS tax. Obviously, if they are not granted credit, some employees will have over withheld SS taxes that will have to be returned when they file next year.>>

In the situation you describe, it may be possible to avoid overwithholding. Section 3121(a)(1) of the Internal Revenue Code provides that IN LIMITED CIRCUMSTANCES a successor employer can treat remuneration paid by a predecessor employer as if it had been paid by the successor employer. In other words, the new company just picks up where the old one left off in collecting and paying FICA tax, even though the new company obviously has a different EIN. This rule applies only if the new company acquires all of the assets that were used in a trade or business (or a unit of a trade or business) of the predecessor employer and immediately after the acquisition employs individuals who were employed by the predecessor in that trade or business. (There is a similar provision for FUTA tax.) When you say the company was "bought out," it sounds like this requirement may have been met so you may be able to avoid doubling up on employment taxes. If there is any doubt as to whether this provision applies, the purchasing company should consult a tax lawyer.

KAT in Chicagoland
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KATinChicagoland:

Thanks for the information.

Merry CHRISTmas to you and yours.


rickisme
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<<When a business withholds social security on employees beginning in January and then gets bought
out by another company (but no change in employees) who has a new ID#, can the payroll
department beginning say in February give credit to each employee for amount withheld in January
by the old company or must it start at zero for purposes of determining the maximum SS
withholding for the year? Some employee salaries will far exceed the maximum amount of earnings
subject to SS tax. Obviously, if they are not granted credit, some employees will have over withheld
SS taxes that will have to be returned when they file next year.>>

KAT in Chicagoland gave you a terrific answer. If you haven't read it, you should do so. And you would be surprised how many tax pros do NOT know about this exemption. But, as KAT also pointed out, the circumstances can be somewhat narrow in application. So check with your payroll people to see how your company stands on the issue.

And, as you note, even if you do get smacked with double FICA tax, you can receive the excess FICA withheld (but not the medicare portion) at the end of the year when you file your individual income tax return.

TMF Taxes
Roy
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<<When a business withholds social security on employees beginning in January and then gets bought
out by another company (but no change in employees) who has a new ID#, can the payroll
department beginning say in February give credit to each employee for amount withheld in January
by the old company or must it start at zero for purposes of determining the maximum SS
withholding for the year? Some employee salaries will far exceed the maximum amount of earnings
subject to SS tax. Obviously, if they are not granted credit, some employees will have over withheld
SS taxes that will have to be returned when they file next year.>>

KAT in Chicagoland gave you a terrific answer. If you haven't read it, you should do so. And you would be surprised how many tax pros do NOT know about this exemption. But, as KAT also pointed out, the circumstances can be somewhat narrow in application. So check with your payroll people to see how your company stands on the issue.

And, as you note, even if you do get smacked with double FICA tax, you can receive the excess FICA withheld (but not the medicare portion) at the end of the year when you file your individual income tax return.

TMF Taxes
Roy
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