8. Special Rules for Paying Taxes Common Paymaster If two or more related corporations employ the same individualat the same time and pay this individual through a commonpaymaster, which is one of the corporations, the corporations areconsidered a single employer. They have to pay, in total, no more insocial security and Medicare taxes than a single employer would. Each corporation must pay its own part of the employment taxes andmay deduct only its own part of the wages. The deductions will not beallowed unless the corporation reimburses the common paymaster for thewage and tax payments. See Regulations section 31.3121(s)-1 formore information. Reporting Agents Reporting agents must submit an application for authorization toact as an agent to the IRS service center where they will be filingreturns. A Form 2678, Employer Appointment of Agent,properly completed by each employer, must be submitted with thisapplication. See Rev. Proc. 70-6, 1970-1 C.B. 420, and theseparate Instructions for Form W-2 for procedures andreporting requirements. Magnetic tape filing of Forms 940 and 941.Reporting agents filing Forms 940 and 941 for a large number ofemployers may file them on magnetic tape. For authorization to fileusing this method, reporting agents must submit a Form 8655,Reporting Agent Authorization for Magnetic Tape/ElectronicFilers, completed by each employer. See Rev. Proc. 96-18,1996-1 C.B. 637, for the procedures for filing Forms 940 and 941on magnetic tape. Also, see Pub. 1314 (Form 940) andPub. 1264 (Form 941) for the tape specifications. Electronic filing of Form 941.The 941e-file program accepts and processes Form 941 electronicallyin the Electronic Data Interchange (EDI) format. The program isavailable to any business or reporting agent who files 10 or morereturns each quarter. See Rev. Proc. 96-17, 1996-1 C.B.633 and Rev. Proc. 97-47, 1997-2 C.B. 510 for proceduralinformation. Also see Pub. 1855 for technicalspecifications. Payment of Employment Taxes by Disregarded Entities Employment taxes for employees of a qualified subchapter Ssubsidiary or other entity disregarded as an entity separate from itsowner may be reported and paid under one of the following methods: By its owner (as if the employees of the disregarded entityare employed directly by the owner) using the owner's name andtaxpayer identification number, or By each entity recognized as a separate entity under statelaw using the entity's own name and taxpayer identificationnumber. If the second method is chosen, the owner retains responsibilityfor the employment tax obligations of the disregarded entity. For moreinformation, see Notice 99-6, 1999-3, I.R.B.12. Lender, Surety, or Other Third-Party Payers Any lender, surety, or other person who pays wages, or suppliesfunds specifically to pay wages directly to the employees of anemployer, or to the employee's agent, is responsible for any requiredwithholding on those wages. The third party is also liable for anyinterest and penalties accruing on these accounts. This includes thewithholding of income, social security, Medicare, and railroadretirement taxes. Note:These rules do not apply to a person acting only as an agent, or tothird-party payers of sick pay, discussed in section 7. If a third party supplies funds to an employer so that the employercan pay the employees' wages, and if the third party knows that theemployer will not pay or deposit the taxes that are required to bewithheld when due, then the third party must pay the taxes withheldfrom the employees' wages but not paid by the employer. However, thethird party does not have to pay more than 25% of the amount that isspecifically supplied for paying wages. The third-party supplier mustalso pay interest on the taxes if they are paid after the due date ofthe employer's return. Third parties are liable only for payment of the employees' partsof payroll taxes. They are not liable for the employer's part. Theemployer must file an employment tax return for wages that he or sheor a third party pays and must furnish Forms W-2 to employees for thewages paid and taxes withheld. The employer also remains liable forany withholding taxes not paid by the third party. Liability of trustee in bankruptcy.A trustee in bankruptcy must withhold, report, and pay income,social security, and Medicare taxes from the payment of priorityclaims for employees' wages earned prior to, but unpaid at the timeof, an employer's bankruptcy. How to pay withheld tax.Third parties who pay employment taxes must file two copies ofForm 4219, Statement of Liability of Lender, Surety, orOther Person for Withholding Taxes. A separate set of forms must befiled for each employer and calendar quarter. Form 4219 must be filed with the IRS service center where theemployer for whom wages were paid, or funds were supplied, filesFederal employment tax returns. Each Form 4219 must be accompanied by a check or money order madepayable to the "United States Treasury." To avoid interest, fullpayment should be made on or before the due date of the employer'sFederal employment tax return. Employee's Portion of Taxes Paid by Employer If you pay your employee's social security and Medicare taxeswithout deducting them from the employee's pay, you must include theamount of the payments in the employee's wages for income taxwithholding and social security, Medicare, and FUTA taxes. Thisincrease in the employee's wage payment for your payment of theemployee's social security and Medicare taxes is also subject toemployee social security and Medicare taxes. This again increases theamount of the additional taxes you must pay. Note: This discussion does not apply to household andagricultural employers. If you pay a household or agriculturalemployee's social security and Medicare taxes, these payments must beincluded in the employee's wages. However, this wage increase due tothe tax payments is not subject to social security or Medicare taxesas discussed in this section. To figure the employee's increased wages in this situation, dividethe stated pay (the amount you pay without taking intoaccount your payment of employee social security and Medicare taxes)by a factor for that year. This factor is determined by subtractingfrom 1 the combined employee social security and Medicare tax rate forthe year the wages are paid. For 2000, the factor is .9235 (1 -.0765). If the stated pay is more than $70,370.70 (2000 wage base$76,200 .9235), follow the procedure described underStated pay of more than $70,370.70 in 2000 below. Stated pay of $70,370.70 or less in 2000. For an employee with stated pay of $70,370.70 or less in 2000,figure the correct wages (wages plus employer-paid employee taxes) andwithholding to report by dividing the stated pay by .9235. This willgive you the wages to report in box 1 and the social security andMedicare wages to report in boxes 3 and 5 of Form W-2. To figure the correct social security tax to enter in box 4 andMedicare tax to enter in box 6, multiply the amounts in boxes 3 and 5by the withholding rates (6.2% and 1.45%) for those taxes, and enterthe results in boxes 4 and 6. Example.Donald Devon hires Lydia Lone for only 1 week during 2000. He paysher $200 for that week. Donald agrees to pay Lydia's part of thesocial security and Medicare taxes. To figure her reportable wages, hedivides $200 by .9235. The result, $216.57, is the amount he reportsas wages in boxes 1, 3, and 5 of Form W-2. To figure the amount toreport as social security tax, Donald multiplies $216.57 by the socialsecurity tax rate of 6.2% (.062). The result, $13.43, is entered inbox 4 of Form W-2. To figure the amount to report as Medicare tax,Donald multiplies $216.57 by the Medicare tax rate of 1.45% (.0145).The result, $3.14, is entered in box 6 of Form W-2. Although he didnot actually withhold these amounts from Lydia, he will report theseamounts as taxes withheld on Form 941 and is responsible for matchingthese amounts with the employer share of these taxes. For FUTA tax and income tax withholding, Lydia's weekly wages are$216.57. Stated pay of more than $70,370.70 in 2000. For an employee with stated pay of more than $70.370.70 in 2000,the correct social security wage amount is $76,200 (the first$70,370.70 of wages .9235). The stated pay in excess of$70,370.70 is not subject to social security tax because the tax onlyapplies to the first $76,200 of wages (stated pay plus employer-paidemployee taxes). Enter $76,200 in box 3 of Form W-2. The socialsecurity tax to enter in box 4 is $4,724.40 ($76,200 .062). To figure the correct Medicare wages to enter in box 5 of Form W-2,subtract $70,370.70 from the stated pay. Divide this amount by .9855(1 - .0145) and add $76,200. For example, if stated pay is$100,000, the correct Medicare wages are figured as follows: $100,000 - $70,370.70 = $29,629.30 $29,629.30 .9855 = $30,065.25 $30,065.25 + $76,200 = $106,265.25 The Medicare wages are $106,265.25. Enter this amount in box 5 ofForm W-2. The Medicare tax to enter in box 6 is $1,540.85 ($106,265.25 .0145). Although these employment tax amounts are not actually withheld,report them as withheld on Form 941, and pay equal amounts as theemployer's share of the social security and Medicare taxes. If thewages for income tax purposes in the preceding example are the same asfor social security and Medicare purposes, the correct wage amount forincome tax withholding is $106,265.25 ($100,000 + $4,724.40 +$1.540.85), which is included in box 1 of Form W-2. International Social Security Agreements The United States has social security agreements with manycountries to eliminate dual taxation and coverage under two socialsecurity systems. Under these agreements, sometimes known astotalization agreements, you generally must pay social security taxesonly to the country where you work. Employees and employers who aresubject only to foreign social security taxes under these agreementsare exempt from U.S. social security taxes, including the Medicareportion. The United States has social security agreements with the followingcountries: Austria, Belgium, Canada, Finland, France, Germany, Greece,Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain,Sweden, Switzerland, and the United Kingdom. Additional agreements areexpected in the future. For more information, see Pub. 519,U.S. Tax Guide for Aliens, or contact: Social Security Administration Office of International Programs P.O. Box 17741 Baltimore, MD 21235-7741 If you have access to the Internet, you can get more informationfrom SSA at www.ssa.gov/international.