The IRS recently issued guidance in Rev. Proc. 2017-28 addressing special rules that apply when employers seek a refund of FICA (social security and Medicare) taxes. This new guidance serves as a reminder to employers that special processes should be followed when seeking a refund of FICA taxes.
As background, recall that FICA taxes are imposed on both the employer and the employee — half is paid directly by the employer and the other half is collected by the employer from payments to the employee. What some employers do not realize is that, if they overpay FICA taxes and seek a refund, the refund claim generally must cover not only the employer share of the taxes, but also the employee’s share.
Additionally, before the claim will be paid, the employer must certify that it has repaid the employee its share of the taxes or that it has obtained the employee’s consent to seek the employee’s taxes on the employee’s behalf. Only if the employer takes reasonable efforts to obtain such employee consents, and is not able to obtain the consent, can the employer proceed with a claim for the employer’s taxes only.
Impact of FICA Refund Procedures
The guidance published in Rev. Rul. 2017-28 sets forth procedures for soliciting employee consents, and requirements for the content of the consents. If these processes are followed, the employer will be treated by the IRS as having made reasonable efforts to obtain employee consents so that, in the event consents are not obtained, the employer can proceed with a claim for the employer’s share of the taxes.
If the employer does obtain the consents under this procedure, and the IRS grants the refund claim, the entire claim will be made to the employer and the employer will be able to distribute the refunded taxes to its employees. In any event, employers would be wise to consult Rev. Proc. 2017-28 before making FICA refund claims.