Payroll Tax Savings Opportunities

After the Great Recession of 2008, many corporations have consistently gone through Merger & Acquisition (“M&A”) activity. The Institute for Mergers, Acquisitions and Alliances (“imaa”) recently released a study reflecting a significant increase in this type of activity and below is a graph reflecting their findings:

There are various business reasons why corporations acquire or merge with other entities. Acquiring or merging with companies is generally to grow the business, acquire companies in the same industry, or even merge with companies that would fit their business model.

However, many companies that go through M&A don’t realize the opportunities out there from a payroll tax perspective. Usually the Payroll Department is last to find out about bringing on employees that were acquired to a newly established EIN or transferred to one of their subsidiaries or parent company.

Payroll is scrambling to report these employees under one of the company’s EIN or a newly established entity timely, but payroll can’t do anything until an EIN is created with the IRS, registration with the Secretary of State, applying for state unemployment and withholding account numbers, payroll systems in place, etc…

Due to the time or system constraints, many employers don’t consider payroll compliance requirements (i.e. reporting M&A activity with the state agencies) and SUI, FUTA and FICA wage base continuance. By using the wages paid by the selling employer to determine when the acquired employees attain the annual taxable wage bases (for FICA, FUTA, and SUI), the acquiring employer can realize meaningful savings if the transferred employees restarted these payroll taxes.

This is where Thomas & Company can assist. We ensure that proper management of historical and current M&A compliance obligations are met with the state agencies and that all potential tax saving opportunities are considered at the state and federal level.

We offer the following services for our current and prospective clients:

Comprehensive Unemployment Tax Review

After reviewing and documenting all state unemployment accounts, we will research account history with state agencies and provide an executive summary of findings to the client. We will make sure unemployment accounts are in good standing and identify outstanding balances, delinquencies and overpayments. In the states where it is permissible, Thomas & Company will submit applications to have overpayments refunded to you and we will advise you of tax strategies available to ensure all future payments are accurate.

Merger & Acquisition Compliance Services

When an asset purchase, merger, internal reorganization or acquisition of a part of a predecessor’s business unit occurs, employers are required by state unemployment agencies to disclose information relating to the transaction. Reporting requirements are complex and vary by state. Any undisclosed and erroneous reporting can result in penalty tax rates, tax rate increases, penalties and/or interest charges or missed savings opportunities. Clients who retain Thomas & Company as their Unemployment Cost Management provider receive this service at no additional cost, while non-client engagements are performed on a project basis.

Tax Saving and Refund Opportunities

When a mid-year transaction occurs, employers may be eligible to consider the year-to-date SUI wages paid by the predecessor. Thomas & Company works directly with the state agency to ensure the tax rate transfers are processed and can prepare amended quarterly SUI returns. We can also amend Form 940 (Employer’s Annual Federal Unemployment (FUTA) Tax Return) and Form 941 (Employer’s Quarterly Federal (FICA) Tax Return) if the transaction qualifies as a Predecessor/Successor Relationship under state and IRS rules. Thomas & Company will continue to track all SUI, FUTA and FICA credits until refunds are secured, and ensure clients follow all statutory requirements of the state agencies and IRS.

If you have historical or upcoming transactions and would like a review of your unemployment tax options and tax recovery opportunities, please contact Josh Kendall at (615) 620-1821 or via e-mail.

As always, if there are any questions please do not hesitate to contact us.