Handling Payroll in Merged Entities

Mergers and other corporate transactions create complexities in many ways, payroll included. Should FICA restart or is the new corporation a successor to the former entity? In an asset purchase transaction,  two methods exist by which a predecessor (seller) and successor (buyer) employer can report payroll in the year of an asset acquisition that involves the transfer of employees: a standard method and an alternative method. Under the standard method, the predecessor performs all the reporting duties for the wages and other compensation that it pays (e.g., filing Form 941 and filing and furnishing Forms W-2 and W-3), and the successor performs all the reporting duties for the wages and other compensation that it pays. Under the alternative method, if the predecessor and successor agree, the successor can assume the predecessor's entire information reporting obligations for the form series 1098 and 1099 (as well as Forms 1042-S, 5498, and W-2G).

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