In the past couple years we have had several dozen clients go through the steps to either rebrand their business, or change their entity type. With a rebrand, this can be a great time to infuse new energy and excitement around their product. With an entity change, a business will update their registration with the IRS. For the majority of our clients, this also means creating a new FEIN (Federal ID Number).
If your plan in the next year or two is to rebrand or perform an entity change, we recommend you plan ahead as much as possible. Rolling this type of change out at the start of a calendar year makes the most sense as far as processing payroll, and the main reason has to do with employment taxes.
For example in Colorado, the unemployment tax is paid on the first $12,500 in wages earned in 2017. When a company decides to basically start over again in the middle of the year, the wages (and therefore the tax liability) begin again as well. In some instances the state will allow businesses to move over their employee history and data. However, this communication requires thoughtful work and communication with the state, as well as a possible waiting game as they make their decision.
Other taxes affected are Federal Unemployment, as well as FICA tax for highly compensated employees.
With careful planning and consideration, businesses can bypass this difficulty by timing the rebranding, or entity update of their business at the start of the calendar year. Please feel free to contact our office with questions.