In Revenue Procedure 2017-28 the IRS clarified rules related to obtaining employee consents when an employer request a refund of overpaid FICA and RRTA taxes. The procedure makes minor changes to the draft ruling issued along with Notice 2015-15.
The new procedure applies to consents requested on or after June 5, 2017. Employers who have already issued requests for consents prior to that date will not need to send out new consent requests and it will not affect the validity of any consents received after that date that were requested prior to June 5. Employers may still rely on the proposed revenue procedure found in Notice 2015-15 for consent request issued prior to June 5, 2017.
The procedure describes the following changes that were made from the proposed revenue procedure found in Notice 2015-15. First, the time for an employee to respond to follow-up request for consent was reduced from 45 to 21 days. As the IRS explains:
Some commentators asked that the amount of time afforded an employee to respond to a request for consent be reduced from 45 to 21 days. This revenue procedure does not reduce the time period because the IRS is concerned that 21 days may not be a sufficient amount of time for an employee to consider and respond to a request for consent. However, in response to these comments, this revenue procedure shortens the time to respond to a second request for consent from 45 to 21 days.
The IRS also responded to concerns regarding identity theft concerns when sending out such consents:
Other commentators expressed concerns about identity theft, requesting clarification whether a truncated taxpayer identification number (TTIN) might be used in a consent. In response to these comments, this revenue procedure permits the use of a TTIN in place of the complete social security number (SSN) of the employee if the employer prepares a consent for the employee to sign and prepopulates the employee’s taxpayer identification number with the TTIN. A TTIN may not be used if the employer merely requests that the employee provide an SSN as the employee’s taxpayer identification number or if the employee furnishes the number via the consent.
As well, the Revenue Procedure adds the following disclosure notice to requests for consents:
This revenue procedure also adds a new requirement that all requests for consent must indicate that an employee cannot authorize the employer to claim a refund on the employee’s behalf for any overpaid Additional Medicare Tax.
The procedure notes that employers who find there have been overpayments of FICA and RRTA taxes may receive a refund of the employer portion of the tax, but they must act to protect the interests of the employees, since if the employer overpaid FICA taxes it’s very likely the employer also withheld excess FICA taxes from the employee’s wages.
Thus, the ruling notes:
Section 31.6402(a)-2(a)(1)(ii) specifically provides that no refund for the employer share of the overpaid FICA taxes will be allowed unless the employer has first repaid or reimbursed its employee or has secured the employee’s consent to the allowance of the claim for refund and includes a claim for the refund of the employee share.
However, in some cases this may be a problem since the employer may not be able to find a former employee or that employee may simply refuse to respond to the employer’s requests.
In such a case, the procedure notes the law provides relief to the employer:
However, this requirement does not apply to the extent that the taxes were not withheld from the employee or, after the employer makes reasonable efforts to repay or reimburse the employee or secure the employee’s consent, the employer cannot locate the employee or the employee will not provide consent.
Section 6 of the Revenue Procedure outlines the requirements for the request for consents and the actual consent.
The request for consent must meet the following requirements:
- Clearly inform the employee of the purpose of the employee consent
- Provide a name and contact information for any questions by the employee and must give a reasonable period of time to respond, which period shall not be less than 45 days from the date of the request.
- Clearly state that the employer will repay or reimburse the employee share of the overpayment (plus any interest allocable to the employee share) to the extent the overpayment (plus allocable interest) is refunded by the IRS
- Indicate that an employee cannot authorize the employer to claim a refund on the employee’s behalf for any overpaid Additional Medicare Tax.
The notice provides the following example language that may be used to satisfy the Additional Medicare Tax Notice:
You cannot authorize us to claim a refund on your behalf for any overpaid Additional Medicare Tax, and our claim will not include a claim for Additional Medicare Tax withheld from employees. Additional Medicare Tax (0.9%) applies to wages, railroad retirement (RRTA) compensation, and self-employment income (together with that of your spouse if filing a joint return) that are more than:
$125,000 if married filing separately,
$250,000 if married filing jointly, or
$200,000 for any other filing status.
If, as a result of our refund claim, your wages are adjusted, you may also be able to claim a refund for Additional Medicare Tax. For more information on the Additional Medicare Tax, see the Instructions for Form 8959.
The Revenue Procedure also provides the following optional items that may be part of the request for consent:
- A request for consent may include an express presumption that if an employee’s response has not been received by the employer during this time period, the employee will be considered to have refused to provide the employee consent; however, a failure to respond may not be deemed consent.
- A request for consent may include a request that the employee keep the employer informed about any change in the employee’s mailing address or email address.
Requests may be sent by mail to the employee’s last known address using the Postal Service or one of the designated delivery services under IRC §7502(f) (the timely filing rules). Requests may be sent by email and consents received electronically if the procedures found in Section 7 of the procedure are followed.
A consent must meet the following requirements:
- Contain the name, address, and taxpayer identification number of the employee;
- Contain the name, address, and employer identification number of the employer;
- Contain the tax period(s), type of tax (e.g., social security and Medicare taxes), and the amount of tax for which the employee consent is provided;
- Affirmatively state that the employee authorizes the employer to claim a refund for the overpayment of the employee share of tax.
- For refund claims for employee tax overcollected in prior years, include the employee's written statement;
- Identify the basis of the claim (e.g., request for refund of the social security and Medicare taxes withheld with regard to excess transit benefits provided in 2014 due to a retroactive legislative change); and
- Be dated and contain the employee's signature under penalties of perjury. The penalties of perjury statement should be located immediately above the required signature.
The employer must retain the consents for “as long as their consents may be material to the administration of any internal revenue law” but in no case for a period shorter than four years from the date the employer files the claim for refund. The consents are not submitted with the claim for refund.
The requirement to obtain a consent before refunds are issued do not apply in the following situations:
- The taxes were not withheld from an employee or,
- After the employer makes reasonable efforts to repay or reimburse the employee or secure the employee’s consent
- The employer cannot locate the employee or
- T he employee will not provide consent.
An employer is deemed to have made reasonable efforts if:
- The employer properly requests consent of the employee as provided in this revenue procedure;
- A request for consent sent electronically provides for an acknowledgement of receipt of the email message. The request must specifically ask the employee to acknowledge receipt of the request for consent (e.g., by clicking on a voting button (YES) or by sending a reply message to the employer). A read-receipt message is not sufficient;
- The employer retains:
- The record of mailing the request for consent;
- The record of emailing the request for consent (including any acknowledgement of receipt of the email message);
- The record of personal delivery to the employee who does not furnish an employee consent; or
- The employee's response indicating that the employee was not authorizing the employer to claim a refund of FICA taxes on his or her behalf;
- In the event a mailing is undeliverable, the employer makes a good faith attempt to determine the employee's current address and, if a new address is discovered, the employer delivers a request for consent in a paper format to the new address or delivers a request for consent by email or by personal delivery, giving the employee not less than 21 days from the date of the second request to reply; and
- In the event of an email delivery failure (e.g., the employer is notified that the message the employer tried to send did not reach the employee because of a problem with the email address) or in the event that the employee does not acknowledge receipt of the email message, the employer mails a request for consent in a paper format to the employee's last known address or provides a request for consent to the employee by personal delivery giving the employee not less than 21 days from the date of the second request to reply.