Chief Counsel Advice 201125015
In Chief Counsel Advice (CCA), IRS explains the obligations of a Federal agency, branch, or department to pay Social Security tax under the Federal Insurance Contributions Act (FICA) for remuneration paid to a Federal employee who also receives wages from one or more other Federal agencies, branches, or departments, and whose combined remuneration from the Federal agencies exceeds the maximum wage base for Social Security tax purposes (i.e., $106,800 for 2011).
Background. FICA taxes include two taxes that are imposed on employers and employees with respect to wages: the Old-Age, Survivors, and Disability Insurance (OASDI or Social Security) tax under Code Sec. 3101(a) (employee's portion) and Code Sec. 3111(a) (employer's portion), and the hospital insurance (Medicare) tax under Code Sec. 3101(b) (employee's portion) and Code Sec. 3111(b) (employer's portion).
There is no limit on the amount of wages subject to the Medicare tax. But under Code Sec. 3121(a)(1), the maximum amount of compensation that is subject to FICA is limited by statute. Any compensation in excess of that limit isn't considered wages for purposes of the FICA rules.
If more than the maximum Social Security tax is withheld from an employee's wages for a calendar year because he worked for two or more employers, the excess is a credit against income tax on the employee's return for the year. (Code Sec. 31(b)(1), Code Sec. 6413(c)(1), Reg. §1.31-2(a)(2), Reg. §31.6413(c)-1)
Under Code Sec. 6413(c)(2)(A), in the case of remuneration received from the U.S. or a wholly owned instrumentality during any calendar year, each head of a Federal agency or instrumentality who makes a return under Code Sec. 3122, and each agent designated by the head of a Federal agency or instrumentality who makes a return, will for purposes of Code Sec. 6413(c) be deemed a separate employer. Additionally, for purposes of Code Sec. 6413(c), the term “wages” includes the amount not to exceed an amount equal to the contribution and benefit base for any calendar year for which the contribution and benefit base is effective, determined by each head or agent as constituting wages paid to an employee.
CCA's guidance. The CCA addresses a number of issues regarding a Federal employee who receives wages from one or more other Federal agencies, branches, or departments, and whose combined remuneration from the Federal agencies exceeds the maximum wage base for Social Security tax purposes. The CCA concludes that:
...applying the rationale of Rev Rul 58-599, 1958-2 CB 4 (where the issue arose in a different tax context under former Code Sec. 105(d)), the Federal Government is considered one employer for purposes of the maximum wage base imposed by Code Sec. 3121(a)(1). The CCA noted that this conclusion was consistent with the need for Code Sec. 6413(c)(2), which allows Federal employees to obtain special refunds of excess Social Security taxes paid as a result of working for two or more Federal agencies. Accordingly, a Federal agency may consider Social Security wages paid by another Federal Government department, agency, or branch to the employee for purposes of determining whether the employee has received wages equal to the contribution and benefit base.
...Federal Government persons who are required to pay FICA taxes and file returns under Code Sec. 3122 (Federal Government employment tax return filers) on behalf of an agency, department, or branch of the Federal Government aren't required to coordinate with other agencies to ensure that the agencies together do not pay Social Security tax on amounts in excess of the contribution and benefit base. Code Sec. 3122 gives Federal Government employment tax return filers the authority to ignore wages paid by other payors in determining whether the Social Security maximum wage base has been reached. The employee is able to recover the employee portion through the special refund of overwithheld Social Security tax under Code Sec. 6413(c)(2)(A), which provides that: (i) each Federal Government employment tax return filer who makes a return under Code Sec. 3122 will, for purposes of Code Sec. 6413(c), be deemed a separate employer; and (ii) in calculating the amount of the refund under Code Sec. 6413(c), the term “wages” includes, for purposes of Code Sec. 6413(c), the amount not to exceed an amount equal to the contribution and benefit base for any calendar year.
...a Federal agency can't file a refund claim for the employer part of the Social Security tax paid in excess of the maximum wage base by the agency and another Federal return filer, while instructing employees to obtain a credit for the employees' Forms 1040, U.S. Individual Income Tax Return, for any employee Social Security taxes withheld in excess of the maximum wage base. To obtain a refund of Social Security tax or obtain credit through the adjustment procedure, the Federal return filer must follow the normal procedures for obtaining a refund or making an adjustment, and also must demonstrate that it paid Social Security taxes for which it is claiming a refund or making an adjustment after wages equal to the contribution and benefit base were paid to the employee by the Federal Government. The requirements for obtaining a refund or making an adjustment include certain employee notification procedures that wouldn't be satisfied simply by telling the employee to claim a credit of the employee Social Security tax portion on his Federal income tax return. Also, a Federal employer can't claim the refund of employer FICA taxes if another Federal employer is in fact entitled to the refund.
...under Code Sec. 3122, a Federal agency using two shared service centers to pay wages to employees isn't required to claim a refund of any overwithholding of employee Social Security tax or overpayment of employer Social Security tax regardless of the amount. The employer also is not required to make an adjustment with respect to any overpayment of employee or employer Social Security tax resulting from the employee receiving wages from two or more Federal Government employment tax return filers.
...under Code Sec. 3122, a shared service center and/or the agency isn't required to coordinate year-end adjustments of Social Security taxes withheld in excess of the contribution and benefit base as a result of the employee receiving wages from two or more Federal Government employment tax filers. The shared service center and/or the agency can only obtain a refund or credit of the overwithheld employer Social Security tax by following the usual refund or adjustment procedures and providing the required information.
References: For the credit for excess Social Security tax withheld, see FTC 2d/FIN ¶A-4002; United States Tax Reporter ¶314.02; TaxDesk ¶568,506; TG ¶9231.
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