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.
Tom Brilli is Head of Donor Advised Funds at J.P. Morgan Wealth Management. Prior to his current role, Tom was Head of Institutional Product Development for North America & Latin America at J.P. Morgan Private Bank and has held leadership positions at Sapient Global Markets focused on the Dodd Frank regulatory space. A graduate of Fairfield University with a BS in Finance, he also received his MBA from Pace University and currently lives in New Jersey with his wife and two children.
Don Wen is a finance leader of Private Company Services at PwC US.
Brad Smith, PhD. is Chief Science Officer, meQuilibrium where he leads meQuilibrium’s active science agenda and research function in the pursuit of scientific advancements to help build workforce potential. meQuilibrium is the #1 digital solution for building resilience at scale for Fortune 500 global enterprises, helping businesses innovate and navigate uncertain times. meQuilibrium harnesses the science of resilience, AI, predictive analytics and neuroscience to help businesses build workforce wellbeing and potential. Leading employers have recognized the power of resilience, and meQuilibrium’s intelligent cloud-based resilience-building system, to both mitigate the negative impacts of stress on an individual basis, at scale, but to also build resilient and agile workforce populations capable of thriving in change.
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.
