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.
W. Michael Hsu, CPA, is founder of DeepSky, an outsourced CFO service known as the Accounting Department for Entrepreneurs. After 10 years of building a financial consulting firm and working with entrepreneurs advising their multimillion-dollar businesses through systems and processes, Hsu has taken his experience in entrepreneurship and condensed it into a methodology named Measure x Hack to serve as a guide to building a successful business, life, and relationship.
Andrea R. Jaffe, CPA is a senior director of professional services at Avalara. She joined Avalara in 2020 as part of an acquisition. She has been in the licensing space since 2011, assisting clients with license portfolio management, and consulting on operational risk management around mergers, acquisitions, divestitures and other entity reorganizations.
Alex Dontoh is a professor of accounting at the Stern School of Business of New York University, and director of its Master of Science in Accounting program. He holds a Ph.D from New York University, an MBA from the University of California, Berkeley and a BSc in business administration from the University of Ghana.
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.
