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.
Donald Moon is a senior associate in Mayer Brown’s Chicago office and a member of the Technology Transactions practice. Donald advises on all types of complex commercial transactions, including those involving IT outsourcing, business process outsourcing, facilities management outsourcing, data center leasing, technology licensing, cloud computing, hosted service agreements, and privacy and security issues.
Brad Peterson is a partner in Mayer Brown’s Chicago office and leads the Technology Transactions practice. Brad has focused his practice for 20 years on helping companies work better with their technology and operations suppliers. In the past five years, he has represented clients in increasing numbers of contracts with digital services providers, including cloud, data analytics, “as a Service” and automated process scopes and cyber security and privacy issues related to those scopes.
Dan Masur is a leader of Mayer Brown’s Technology Transactions practice. Dan has represented national and international clients in a broad range of on-shore, near-shore, and offshore information technology and business process sourcing transactions involving global and niche outsourcing providers, offshore captives and various hybrid structures. His representative information technology transactions include the outsourcing of IT infrastructure services and support, data center services, application development and maintenance, network management and support, help desk/call center services, and telecommunications services. Dan has represented established and emerging companies in many different industries, including insurance, banking, aerospace, defense contracting, electronic commerce, financial services, pharmaceuticals, and more.
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.
