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.
William Lee is the chief economist at the Milken Institute. He has previously held positions as managing director and head of North America economics for Citigroup, a deputy division chief at the International Monetary Fund, a senior economist and division chief of the financial markets division at the Federal Reserve Bank of New York, and an economist with the Federal Reserve Board.
Steve Meurer PhD, is executive principal of data science and member insights at Vizient.
Nancy Czaplinski, CPA/ABV/CGMA, CFA, ASA is a managing director with Duff & Phelps and serves as chair of the Qualifications Work Stream of the Fair Value Infrastructure Initiative. Nancy is also a member at-large of the Business Valuation Committee of the American Society of Appraisers and serves on the Business Valuation Resource Panel of The Appraisal Foundation. Nancy is past president of the Southeast Wisconsin Chapter of the American Society of Appraisers.
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.
