The IRS has issued guidance (Notice 2021-11) to address how employers who have chosen to defer taxes on wages for certain employees can withhold and pay deferred taxes throughout 2021, rather than just in the first four months of the year.
Notice 2020-65 gave employers the option to defer Social Security taxes for certain employees from September 1, 2020 to December 31, 2020. This applies to employees paid less than $ 4,000 every two weeks, or one equivalent value for other payment periods, with each payment period considered separately. The employee’s share of Social Security taxes (Old Age Insurance, Survivors and Disability or OASDI) is calculated at 6.2% of employees’ salaries (IRS News Release IR-2021-17).
According to the Consolidated Appropriations Act, 2021, PL 116-260, the end date of the period during which employers must withhold and pay applicable taxes (defined as the employee’s share of Social Security tax in accordance with with Section 3102 (a) or the equivalent Railway Retirement Tax under Section 3202 (a)) is postponed from April 30, 2021 to December 31, 2021. As a result, any associated interest, fines and additions to the tax for late payment of any applicable unpaid taxes will begin to accrue on January 1, 2022, instead of May 1, 2021.
Any deferred taxes under the terms of Notice 2020-65 should be withheld and paid proportionally to employees’ salaries between January 1, 2021 and April 30, 2021. However, the Consolidated Appropriations Act of 2021, signed in law December 27 , extended the period in which deferred taxes are retained and paid proportionally. The period is now for the whole year – from January 1, 2021 to December 31, 2021.
Notice 2021-11 amends Notice 2020-65 to reflect this extended period. Payments made by January 3, 2022 will be considered timely because December 31, 2021 is a legal holiday. Fines, interest and tax additions start on January 1, 2022, for any unpaid balances.
The IRS warned employees that they could see their deferred taxes being collected immediately and that they should check with the employer’s payroll contact what the collection schedule will be.
– Sally P. Schreiber, JD, ([email protected]) it is a JofA senior editor.