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.
Scott Madenburg is a market advisor at AuditBoard, where he works with various internal audit and compliance teams to help automate the administrative tasks of audit, risk and compliance activities. He is an internal audit leader with over 15 years of global business experience in financial, information system, operational, and compliance auditing; Sarbanes-Oxley; business process evaluation and design; ERP system implementation and administration; mergers and acquisitions; cyber-security; and fraud investigation. He began his career at Arthur Andersen before transitioning into internal audit with Fox Entertainment & News Corporation and Gemstar-TV Guide/Rovi Corporation. Prior to joining AuditBoard, he was the head of audit at Mobilitie LLC, where he built the internal audit function from the ground up to an eight-person department focusing on agile audits, cyber and IT security, and FCC compliance.
Ian Williams is a director at KBKG, specializing in research and development and employment tax credits. He spent 11 years at a Big Four accounting firm specializing in R&D tax credits and fixed asset studies across a variety of industries. He has extensive experience in software, heavy manufacturing, aerospace, automotive, and consumer products industries, as well as defending credit claims with the IRS.
Jason Melillo is a principal and local incentive practice leader at KBKG. His areas of expertise are local incentives, employment tax credits which includes enterprise zones, Work Opportunity Tax Credits, and other employment credits. For over 20 years, he has worked with numerous companies and CPAs on employment tax credits as well as cost segregation studies.
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.
