FICA Refund Claim Guidance Issued by IRS
Author: Rena Pirsos, XpertHR Legal Editor
March 27, 2017
The IRS has issued Rev. Proc. 2017-28, clarifying the procedure by which an employer may request an employee's consent to seek a refund of overwithheld FICA taxes on the employee's behalf, beginning June 5, 2017. The Rev. Proc. also clarifies the rules regarding the required substance of the consents employees provide to requesting employers.
The Rev. Proc. does not apply to refunds of overwithheld additional Medicare tax (AMT). In addition, it does not require an employer to solicit a new consent from an employee if one has already been made, or affect the validity of a current consent, provided the employer complies with the current consent-request requirements.
If an employer overwithholds FICA taxes from an employee's pay and both the employer and employee are entitled to a refund of the overwithheld amounts, the employer is required to make a reasonable effort to protect the employee's right to a refund. Federal tax regulations prohibit an employer from seeking a refund of the employer portion of the overwithheld taxes until the employer first repays or reimburses the employee or secures the employee's consent to pursue the refund claim on the employee's behalf.
The requirement to protect an employee's interest when requesting a FICA refund does not apply if the employer cannot locate the employee or the employee will not provide consent, despite the employer's reasonable effort to repay or reimburse the employee or obtain the employee's consent.
The Rev. Proc. provides that an employer may solicit an employee's consent on paper or electronically, but it cannot require the employee to communicate with the employer electronically. Electronically solicited consents must require the employee to take some positive responsive action, such as clicking a "Yes" button. In addition, paper and electronic consent requests must:
- Clearly inform the employee of the purpose of the consent (i.e., to obtain a refund of overwithheld FICA taxes);
- Provide the name and contact information of a person who can answer the employee's questions;
- Clearly state that the employer will repay or reimburse the employee's share of the overwithheld FICA taxes (plus any interest allocable to the employee's share) if the IRS refunds the overpayment;
- Indicate that the employee cannot authorize the employer to claim a refund on the employee's behalf for any overpaid AMT, regardless of whether AMT was withheld from the employee; and
- Provide the employee with a reasonable period of time in which to respond to the employer's request; specifically, at least 45 days from the date of the request.
Employers must also comply with additional good-faith requirements in their effort to locate employees from whom they are requesting consent.
Under the Rev. Proc., an employee's consent must include:
- Specific personal identification and contact information of the employee;
- An affirmative statement authorizing the employer to seek the refund of the employee's share of FICA taxes;
- The basis for the refund claim; and
- The employee's signature (provided under penalty of perjury).
Employees may be required to consent electronically so long as the employer's system and procedure complies with the Form W-4 electronic filing rules.