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.
Eric Ludwig is assistant professor of retirement income and RICP program director at The American College of Financial Services, as well as CEO of Stockbridge Private Wealth Management. His research focuses on retirement income planning strategies and behavioral finance.
Scott Smith is co-founder and chief operating officer at Fizz, a money app for students. He previously studied finance, economics, accounting and real estate at Cornell University's School of Hotel Administration.
Patrick Nelli is the CEO & Founder of Aligned Marketplace. Prior to Aligned Marketplace, Patrick spent a decade at Health Catalyst (HCAT), a data and analytics company focused on supporting some of the largest healthcare organizations in the country, where he was President and Chief Financial Officer and helped take the company public. At Health Catalyst, he helped build value-based care analytics for some of the largest ACOs in the country in pursuit of Health Catalyst's mission to deliver data-informed improvement. Patrick's passion is to drive as much healthcare improvement as possible through innovation.
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.
