If a Company Is Bought Out, Who Is Responsible for the W-2?
The Internal Revenue Service requires all employers to prepare annual W-2 forms for each employee paid wages over a certain amount and for all employees subject to payroll tax withholding. Selling a company does not necessarily absolve previous owners of responsibility for preparing the W-2 form and providing it, as required by federal laws, to employees and to the Social Security Administration. The IRS publishes instructions for previous and current employers to determine responsibility for W-2 forms.
Unless employers receive an extension from the IRS to file and furnish W-2 forms, federal law requires employers to provide copies of the W-2 form to employees by Jan. 31 of the year following the tax year and file copies with the Social Security Administration by Feb. 28 or, if the forms are filed electronically, April 15. The responsibility for the W-2 form, which is detailed in the IRS Internal Revenue Bulletin 2004-34, depends on when the previous owner completes its final payroll and when the new owner officially assumes ownership of the business. The IRS procedure provides two options for predecessors and successors -- IRS terms for previous and current employers -- to choose from when determining who assumes responsibility for the W-2 forms.
The IRS Revenue Procedure 2004-53 is the basis for the standard and alternative options available to predecessor and successor employers involved in the purchase of a business. The procedure applies if the successor hires the employees who worked for the predecessor immediately, and in the same calendar year, before the purchase of the business. The procedure also provides instructions for completing Form 941 Report of Discrepancies Caused by Acquisitions and Schedule D (Form 941) Report of Discrepancies Caused by Acquisitions, Statutory Mergers, or Consolidations.
The standard procedure requires the predecessor to assume responsibility for W-2 forms. The predecessor is responsible for filing duties related to compensation it paid, including filing Form 941, Employer’s Quarterly Federal Tax Return, providing W-2 forms to employees and filing the W-2 forms with SSA. If the predecessor chooses to stop paying compensation to employees hired by the successor, the predecessor is required to file a final Form 941 for the quarter in which the successor takes over the business. Under the standard procedure, the successor employer is responsible for the W-2 forms and related reporting duties for the compensation it pays to employees.
The alternative procedure allows the predecessor and successor employers to agree that the predecessor is freed from responsibility for W-2 forms, including responsibility for providing the forms to employees regardless of when they changed employers and filing the forms with the Social Security Administration. Under this agreement, compensation paid by both the previous and current employers is included on the W-2 forms. The previous employer is responsible for the W-2 forms of employees who were not hired by the new business owners.