The IRS has issued guidance (Notice 2021-11) to address how employers who elected to defer certain employees’ payroll taxes can withhold and pay the deferred taxes throughout 2021 instead of just the first four months of the year.
Notice 2020-65 gave employers the option to defer certain employees’ Social Security taxes from Sept. 1, 2020, to Dec. 31, 2020. This applied to employees paid less than $4,000 every two weeks, or an equivalent amount for other pay periods, with each pay period considered separately. The employee portion of Social Security taxes (Old Age, Survivors, and Disability Insurance, or OASDI) are calculated at 6.2% of employees’ wages (IRS News Release IR-2021-17).
Under the Consolidated Appropriations Act, 2021, P.L. 116-260, the end date of the period during which employers must withhold and pay applicable taxes (defined as the employee share of Social Security tax under Sec. 3102(a) or the Railroad Retirement Tax equivalent under Sec. 3202(a)) is postponed from April 30, 2021, to Dec. 31, 2021. As a result, any associated interest, penalties, and additions to tax for late payment of any unpaid applicable taxes will begin to accrue on Jan. 1, 2022, rather than on May 1, 2021.
Any taxes deferred under Notice 2020-65 were to be withheld and paid ratably from employee wages between Jan. 1, 2021, until April 30, 2021. However, the Consolidated Appropriations Act, 2021, signed into law Dec. 27, extended the period that the deferred taxes are withheld and paid ratably. The period is now for the entire year — from Jan. 1, 2021, through Dec. 31, 2021.
Notice 2021-11 amends Notice 2020-65 to reflect this extended period. Payments made by Jan. 3, 2022, will be considered timely because Dec. 31, 2021, is a legal holiday. Penalties, interest, and additions to tax start on Jan. 1, 2022, for any unpaid balances.
The IRS warned employees that they could see their deferred taxes being collected immediately and should check with their employer’s payroll contact on what their collection schedule will be.
— Sally P. Schreiber, J.D., (Sally.Schreiber@aicpa-cima.com) is a JofA senior editor.