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Last August, the U.S. Department of Treasury was ordered to defer collecting certain payroll taxes from wages earned between Sept. 1 and Dec. 31, 2020. The Internal Revenue Service (IRS) issued Notice 2020-65 to provide employee payroll tax deferral guidance for affected employers. Employer participation in these deferrals is permitted, but not required. Last week, the IRS released Notice 2021-11 PDF as an update to the employee payroll tax deferral, addressing how employers who elected to defer certain employees’ taxes can withhold and pay the deferred taxes throughout 2021 instead of just the first four months of the year.
Previous Rules
The August ruling released employers from their obligation to collect and pay payroll Social Security and Medicare taxes for individuals who receive applicable wages, defined as compensation that is less than $4,000 for a biweekly pay period, or “the equivalent threshold amount with respect to other pay periods.” Employers had to previously determine whether applicable wages exist every pay period between Sept. 1 and Dec. 31, 2020.
Employers were also informed that any taxes deferred between Sept. 1 and Dec. 31, 2020, would need to be collected and remitted to the IRS between Jan. 1 and Apr. 30, 2021, unless the Department can find an avenue to eliminate the obligation to pay the deferred taxes. Interest, penalties, and additions to tax will begin to accrue on May 1, 2021, for any unpaid deferred taxes.
Employers will need to pay these deferred taxes in addition to collecting and remitting the taxes that regularly become due during the Jan. 1 to Apr. 30 pay period.
Rule Changes
On December 27, the Consolidated Appropriations Act, 2021 was signed into law, extending the period that the deferred taxes are withheld and paid ratably from January 1, 2021, through December 31, 2021. Notice 2021-11 updates Notice 2020-65 to reflect this extended period. On January 1, 2022, penalties, interest, and additions to tax will apply for any unpaid balances.
Because employees could start seeing their deferred taxes being collected immediately, we advise employees to check with their company’s payroll department about their collection schedule.
GTM will continue to monitor this issue and will provide updates as more guidance is released.
Download the Complete Guide to Small Business Payroll
From hiring and paying employees, to calculating and reporting payroll taxes and knowing all of the federal, state, and local labor laws that affect your business, it can seem overwhelming, especially when you are running a small business and don’t have a management team to handle everything. That’s why we’ve put together The Complete Guide to Small Business Payroll that will help you with what you need to know.
