Federal Circuit - Payroll service company not entitled to refunds of employer share of employment taxes 

September 10:  The U.S. Court of Appeals for the Federal Circuit today affirmed a decision of the Court of Federal Claims that rejected the claims of payroll service companies for refunds of employment taxes based solely on the employer share of FUTA and FICA tax obligations. Cencast Services, L.P. v. United States, 12-5142
(Fed. Cir. September 10, 2013)

Read the Federal Circuit’s decision [PDF 182 KB]


The payroll service provider (in consolidated tax refund cases) was an entity that remitted payroll and employment taxes—i.e., FUTA and FICA taxes—on behalf of motion picture and television production companies. In this role, the payroll service provider was the statutory employer of the workers. When the payroll service company filed its FUTA and FICA employment tax returns, it treated each employee as being in an “employment” relationship with it, rather than with the production company that was the worker’s common law employer. This treatment reduced the overall tax payments because of statutory caps on both FUTA and FICA taxes.

The Federal Circuit agreed with the federal claims court that the liability for employment taxes is determined by reference to the worker’s common law employer. The production company (the common law employer) could not decrease its liability by retaining a payroll service provider (statutory employer) to make the wage payments to its employees.

The Federal Circuit also held that, based on procedural grounds, the payroll service provider was barred from raising a theory that it overpaid the FUTA and FICA taxes because some of the individuals should have been classified as independent contractors.

©2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

The KPMG logo and name are trademarks of KPMG International.

KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever.

The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Direct comments, including requests for subscriptions, to us-kpmgwnt@kpmg.com.
For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at:

+ 1 202 533 4366

1801 K Street NW
Washington, DC 20006.

Share this

Share this


Current and future KPMG clients may subscribe to TaxNewsFlash email alerts.

Email your contact information.

TaxNewsFlash-United States by year