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.
Jason Hemsley is a wealth advisor at Gratus Capital and has been providing custom wealth and business succession plans for over 15 years. Before working at Gratus Capital, he was a senior wealth planning strategist at Wells Fargo Private Bank.
Isabella Aldrete is a summer reporter at Employee Benefit News. She is currently a senior at Barnard College and a former deputy editor at the Columbia Daily Spectator.
Jonathan Schiff, Ph.D, is a professor of accounting at Fairleigh Dickinson University in Teaneck, N.J. He is the author of over 70 articles and research studies on accounting, controls, performance management, CFO practice development, and financial and cost management. He also served as visiting professor of accounting at Columbia University's School of Business and taught in their MBA and executive MBA programs, and was the founder, in 1995, of the Finance Development & Training Institute (www.fdti.org) a 10-member company alliance, chaired by Dell Technologies. He also established several other best practices sharing alliances including the Activity-Based Costing Implementation Group, the Europe-Finance Leadership Institute, the Transit-Finance Learning Exchange and the China Finance Institute. He has served as chairman of a Nasdaq-listed company audit committee and is frequently quoted in the national business media, including Business Week, The Washington Post, USA Today and The New York Times. Schiff received his Ph.D. from New York University. Before completing his master's degree in accounting at NYU, he worked as a staff auditor with Price Waterhouse.
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.
