ETS Tax Intelligence: Internal Reorganizations – A Case Study
A new year can bring about change in organizations necessary to achieve certain strategic initiatives. These changes often involve the movement of employees between and among related employers (i.e., legal entities having unique FEINs) under the same organizational umbrella. Organizational changes can take many forms and be referred to in many different ways, including:
- Internal reorganizations
- Workforce realignments
- Employee movements
If the organizational change is not managed properly, it can present significant financial risks. To assist employers with understanding these risks, below is a case study based on a recent transaction managed by Equifax Workforce Solutions.
Facts and Circumstances
In July of 2013, Industry, Inc. (“Industry”) spun off its technologies division. Approximately 2,800 employees in 43 states were transferred into a newly created legal entity, Technologies Company (“Technologies”). At the time of the transaction, Industry inadvertently filed documentation with the state workforce agencies indicating Technologies was a new employer rather than a “successor employer.” Technologies treated the transferred employees as new hires effective July 1, 2013, and as a result, new employer state unemployment insurance (“UI”) tax rates were assigned to Technologies and all applicable wage bases (FICA, FUTA, and UI) were restarted.
In May of 2014, Technologies received a troubling notice from the state of Wisconsin. Wisconsin’s automated system, used to track employee movements for purposes of detecting possible “SUTA dumping,” had identified a significant shift of employees from Industry to Technologies. In accordance with Wisconsin UI tax provisions, employers are required to report transfers of business operations, inclusive of employment, between related entities as mandated in all states pursuant to P.L. 108-295, the SUTA Dumping Prevention Act of 2004.
After being provided a copy of the Wisconsin notice, Equifax promptly scheduled a meeting with Technologies to discuss the spin off to gather an understanding of all the facts and circumstances. After contacting the state of Wisconsin to explain the inadvertent new employer registration and the details of the spin off, Equifax assisted with the preparation and filing of amended compliance filings for all 43 states to properly report the transfer of employees from Industry to Technologies. Once the compliance filings were processed by the state workforce agencies, Equifax assisted Technologies in filing amended returns/reports to recover all taxes duplicated as a result of treating the employees as new hires and restarting the annual taxable wage bases. As a result, Technologies was able to recover overpaid social security (“FICA”), federal unemployment (“FUTA”), and state unemployment taxes of approximately $2.3 million.
Since 2012, Equifax has recovered over $44 million in overpaid employment taxes on behalf of employers. For more information about meeting state compliance requirements and identifying potential overpaid employment taxes, please contact Pete Krieshok at (314) 214-7325 or via email at pete.krieshok@Equifax.com. You can also visit our corporate blog for more information on other employment tax matters that might impact your organization.
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