You’ve carved a subsidiary out of your main operation, so now you own two separate business entities.

But that means you could be overpaying payroll tax if some employees work for both companies.  Here is the strategy: Assign a “common paymaster” to handle payroll tax matters. If you pay the shared employees from a single source, you won’t overpay the payroll tax.  Each employer and employee must pay an equal share of the FICA tax. For 2022, the Social Security tax portion of the FICA tax is 12.4% against a wage base of $147,000. All wages are subject to the 2.9% Medicare portion of the FICA tax. Half of the FICA tax  is withheld from employee wages. The employer pays the other half.  With a common paymaster, you pay less FICA tax for shared employees who earn more than the Social Security wage base: $147,000 for 2022.

To qualify for the common paymaster break, your company must meet three requirements:

• At least 50% of the officers of one company are also officers of the other company.
• At least 30% of the employees of one company work for the other company.
• One or more of the companies owns at least 50% of the other companies.