Employer and payroll agent each issue Forms W-2 for wages they paid

Plain-English summary

Chief Counsel addressed who must issue Forms W-2 when an employer appoints a Treasury Regulation section 31.3504-1 payroll agent partway through a calendar year. Each entity must issue Forms W-2 for the wages that entity actually paid. The employer uses its own identifying information for wages it paid before the agency relationship, while the agent uses its name, employer identification number, and an “agent for” designation for wages it paid after appointment. This allocation keeps each Form W-2 consistent with the employer identification number reported on the corresponding Forms 941. The advice relies on section 3504, Treasury Regulation section 31.3504-1, Revenue Procedure 2013-39, and the Forms W-2 and W-3 instructions.

Ruling snapshot

• Question: Who issues Forms W-2 when a section 31.3504-1 payroll agency relationship begins midyear?
• Outcome: Each entity issues Forms W-2 for the wages it paid during the calendar year.
• Key authorities: IRC § 3504; Treas. Reg. § 31.3504-1; Rev. Proc. 2013-39

Full text (IRS public release)

           Office of Chief Counsel
           Internal Revenue Service
           memorandum
           Number: 201922026
           Release Date: 5/31/2019
           CC:EEE:EOET:ET1:KRMorrison-Lee
           POSTN-107316-19

 UILC:     3504.01-00

  date:    May 02, 2019

     to:   Marissa Lenius, Senior Attorney (Gulf Coast Area, Jacksonville)
           Office of Division Counsel (Tax Exempt & Government Entities)
           CC:TEGEDC:GCDALJ

  from:    Melissa Duce, Senior Technician Reviewer, Employment Tax Branch 2
           (Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations, and
           Employment Taxes) CC:EEE:EOET:ET2


subject:   Information Returns for Mid-Year Change to Treas. Reg. § 31.3504-1 Agent

           This memorandum responds to your request for non-taxpayer specific legal advice
           regarding the information return obligations of a common law employer after entering
           into an agency relationship pursuant to section 31.3504-1 of the Treasury Regulations.
           This advice may not be used or cited as precedent.


           ISSUE

           Which entity, the common law employer (“employer”) or the 31.3504-1 agent (“agent”),
           is responsible for issuing Forms W-2 when a Treas. Reg. § 31.3504-1 agency
           relationship begins mid-year?

           CONCLUSION

           Each entity that paid wages during the calendar year should issue Forms W-2 reflecting
           the wages it paid.

           LAW AND ANALYSIS

           Section 3504 authorizes the Secretary to promulgate regulations to designate an agent
           to “perform such acts as are required of employers” when the “agent, or other person
           has the control, receipt, custody, or disposal of, or pays the wages of an employee or
           group of employees.” Section 31.3504-1(a) of the Treasury Regulations provides,
POSTN-107316-19                             2


In the event wages as defined in chapter 21 or 24 of the Internal Revenue Code (Code),
or compensation as defined in chapter 22 of the Code, of an employee or group of
employees, employed by one or more employers, is paid by a fiduciary, agent, or other
person (“agent”), or if that agent has the control, receipt, custody, or disposal of
(collectively “pays”) wages or compensation, the Internal Revenue Service may, subject
to the terms and conditions as it deems proper, authorize that agent to perform the acts
required of the employer or employers under those provisions of the Code and the
regulations that apply, for purposes of the taxes imposed by the chapter or chapters,
with respect to wages or compensation paid by the agent. If the agent is authorized by
the Internal Revenue Service to perform such acts, all provisions of law (including
penalties) and of the regulations applicable to an employer with respect to such acts
shall be applicable to the agent. However, each employer for whom the agent acts shall
remain subject to all provisions of law (including penalties) and of the regulations
applicable to an employer with respect to such acts. Any application to authorize an
agent to perform such acts, signed by the agent and the employer, shall be made on the
form prescribed by the Internal Revenue Service and shall be filed with the Internal
Revenue Service as prescribed in the instructions to the form and other applicable
guidance.

This regulatory language clarifies that any acts required of the employer that are
performed by the agent must relate to wages paid by the agent. Revenue Procedure
2013-39 provides additional guidance on proper procedures for designating an agent
under § 31.3504-1. It provides that an employer uses Form 2678 to authorize an agent
under § 31.3504-1 to perform acts required of an employer. Section 4.05 of Rev. Proc.
2013-39 provides that, “Generally, the agent furnishes and files one Form W-2, Wage
and Tax Statement, for each employee. The agent’s EIN is entered in the spaces
provided for the employer. The name of the agent, followed by “Agent for (name of
employer),” is entered in the space provided for the employer.” Consistent with this
instruction, the General Instructions for the Forms W-2 and W-3 provide that an agent
who has an approved Form 2678, should enter its name, EIN, and “agent for
(employer)” on the Form W-2 it files, and clarify that for information return matching
purposes, Forms W-2 with the agent’s information should only be issued with respect to
wages for which the agent’s EIN was reported on the corresponding Form(s) 941 (or
other relevant information return(s)).

Accordingly, in situations in which both the employer and the 31.3504-1 agent paid
wages to employees of the employer during the calendar year, each entity should issue
a Form W-2 to each employee, reporting the wages it paid to that employee.

Example

To illustrate, assume an employer pays wages to its employees, pays employment
taxes, and files Forms 941, Employer’s Quarterly Federal Tax Returns, for the first three
quarters of a calendar year. For the fourth quarter, the employer executes and properly
POSTN-107316-19                              3

files a Form 2678, Employer/Payer Appointment of Agent, authorizing a representative
to act as an agent under § 3504 of the Internal Revenue Code and § 31.3504-1 of the
Treasury Regulations and appointing the agent to file Forms 941 for all employees. The
employer’s appointed agent (“agent”) then files an aggregate Form 941 for the final
quarter of the year, along with an attached Schedule R, Allocation Schedule for
Aggregate Form 941 Filers, properly reporting the employer’s EIN and all other required
information.

Under section 3504 and Treas. Reg. § 31.3504-1, the employer in this scenario should
issue Forms W-2 with respect to the wages it paid during the first three quarters of the
year, with the employer’s EIN and other identifying information in the relevant boxes,
and the 31.3504-1 agent should issue Forms W-2 with respect to the wages it paid in
the final quarter of the year, with the agent’s name, EIN, and “agent for [the employer]”
included in the relevant boxes.

This writing may contain privileged information. Any unauthorized disclosure of this
writing may undermine our ability to protect the privileged information. If disclosure is
determined to be necessary, please contact this office for our views.

Please call (202) 317-6798 if you have any further questions.