On May 31, the IRS released a legal memorandum, ILM 201922026, regarding the information return obligations of a common law employer when it appoints a pay agent in the middle of a calendar year. In general, an employer may appoint a pay agent under section 3504 by using IRS Form 2678 (Employer/Payer Appointment of Agent) to appoint an agent. An agent includes a fiduciary, agent, or other person (collectively an “agent”) that has control, receipt, custody, disposal, or otherwise pays the wages of an employee or group of employees, employed by one or more employers. An agent is appointed to perform certain specified acts required by employers.
The memorandum focuses on the treatment of an employer that appoints an agent to pay wages during the year. The employer pays the wages for the first three quarters of the year, and then the agent pays the fourth quarter wages for all employees under the authority of an IRS approved Form 2678 filed by the employer. The employer files Forms 941 for the first three quarters of the calendar year, and the agent files an aggregate Form 941 for the fourth quarter reporting wages paid on behalf of the employer (along with any wages paid on behalf of other employers) with an attached Schedule R (Allocation Schedule for Aggregate Form 941 Filers). The Schedule R is used to allocate the aggregate information reported on the agent’s quarterly Form 941 to each client—wage and tax information is specifically apportioned to each employer by EIN on the Schedule R.
The memorandum concludes that the employer should issue Forms W-2 for the wages it paid during the first three quarters of the year using its EIN, and the agent should issue Forms W-2 for the wages it paid to the employer’s employees for the fourth quarter under the agent’s own EIN. When the appointed agent issues the Forms W-2, it is instructed to insert its name followed by “Agent for [name of employer]” in the space for the employer’s name and address (box c).