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How to Obtain an Employee's Consent to Claim a Refund of Overwithheld FICA Taxes

Author: Alice Gilman

When an employer overwithholds FICA (Social Security and Medicare) taxes from an employee's pay as a result of inadvertently overpaying the employee, both the employer and employee are entitled to a refund of the overwithheld FICA taxes under +I.R.C. § 6402. The Internal Revenue Code (IRC) requires the employer to make a reasonable effort to protect the employee's refund interest. However, IRC regulations prohibit the employer from claiming a refund of the employer portion of the overwithheld taxes from the Internal Revenue Service (IRS) 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 (e.g., the employee no longer works for the employer) 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 procedure by which an employer may request this consent from an employee (for requests made beginning on or after June 5, 2017) is found in an IRS revenue procedure - Rev. Proc. 2017-28. The revenue procedure also dictates exactly what must be included in a consent.

Employees' consents may be provided in writing or electronically, and employers must provide both options to employees (i.e., electronic consent may not be the only option). An employee cannot consent to a refund of overpaid additional Medicare tax.

The following steps will help an employer obtain an employee's consent to claim a refund of overpaid FICA taxes due to an overpayment of wages and file a refund claim in compliance with IRS rules and procedures.