Changing Employers – Tax Rules

When helping some clients with yearend W-2’s, there were problems with the FICA reporting. As we dug in, turns out that when the employee joined the company, they were close to the FICA limit and didn’t want to exceed it, so the employer agreed to consider previous FICA contributions and only take the difference through the end of the year—that’s not how this works.

Let’s stick with the FICA situation. Regardless of when a new employee starts, the FICA rules begin. And you the employer have to match those contributions. It is possible that between you and the previous employer, the total employer contribution will exceed the limit, and the government is just fine with that.

As for the employee, at the end of the year they’ll have more than one W-2. If between them the employee has contributed beyond the limit, they can handle that on their tax return. Get with your CPA on this, but I believe it’s considered as an overpayment that can be used against any taxes owed. This is how the employee will be made whole.

The SUTA and FUTA limits are handled the same way, and they’re a much lower bar. If an employee has 3 jobs and earns at least $7,000 at each job over the year, each employer will pay the FUTA contribution for that employee. Same thing for State Unemployment.

Bottom line: You can’t override the calcs for a new employee. They need to pay in, and you need to match.—CMW