The Internal Revenue Service released information on how employees now have until the end of the year to repay any payroll taxes they deferred from last year.
Former President Trump issued a presidential memorandum last August allowing Social Security taxes to be deferred for the rest of 2020, but under the order they had to be repaid by April 30, 2021. The coronavirus relief package that Congress passed last month extended the repayment period until the end of this year.
Relatively few companies actually implemented the payroll deferral for their employees because there was no guarantee that the deferred payroll taxes would ultimately be forgiven by Congress. However, federal employees and military service members were still required to accept the payroll tax deferral, meaning those taxpayers will be facing smaller paychecks later this year.
Anna E. Mallen is a J.D. candidate at Drake University Law School, Des Moines, Iowa.
John F. Fatino is a member attorney at Whitfield & Eddy Law in Des Moines, Iowa. He counsels financial cooperatives in proactive measures and risk avoidance including client education for board members and senior management regarding corporate governance and employment matters.
Frank Vari, JD, MTax, CPA, is the practice leader of FJV Tax, a CPA firm that specializes in complex international and U.S. tax planning. He can be reached via email at frank.vari@fjvtax.com or telephone at (617) 770-7286 or (800) 685-2324. He began his career in international and corporate tax consulting with Deloitte and KPMG in the Midwest and Dallas. He has also served as senior vice president of tax for a large publicly traded manufacturer as well as a large private equity-owned global publisher. Vari has also been an adjunct professor of taxation to law and business students on international tax and corporate mergers and acquisitions. He is also a frequent speaker and author on complex international tax topics and issues. He is a licensed CPA in Massachusetts and Ohio and a licensed attorney in Ohio and the U.S. Tax Court. His education includes a Bachelor of Science in Accounting, a Master of Taxation, and a Juris Doctorate degree.
In Notice 2021-11, the IRS on Tuesday explained how employers who deferred payroll taxes on behalf of their employees can withhold and pay the deferred taxes throughout 2021 instead of just within the first four months of the year.
The deferral applied to employees who were paid less than $4,000 every two weeks, or an equivalent amount for other pay periods, with each pay period considered separately. The taxes, which are technically called Old Age, Survivors and Disability Insurance, or OASDI, are calculated at 6.2 percent of employees’ wages.
Notice 2021-11 makes changes to last year’s Notice 2020-65 to reflect the extended payment period. Payments made by Jan. 3, 2022, will be considered to be timely because Dec. 31, 2021, is a legal holiday. However, any penalties, interest and additions to tax will now start to apply on Jan. 1, 2022, for any unpaid balances
The IRS cautioned that employees could see their deferred taxes being collected immediately, so employees should check with their organization’s payroll point of contact on what their collection schedule will be.
