The IRS has extended the time period during which employers must withhold and pay the employee portion of Social Security tax that employers elected to defer on wages paid from September 1, 2020, through December 31, 2020. Specifically:
- the end date of the period for withholding and paying the deferred tax is postponed from April 30, 2021, to December 31, 2021; and
- any interest, penalties, and additions to tax for late payment of any unpaid deferred tax will begin to accrue on January 1, 2022, rather than on May 1, 2021.
Notice 2020-65, I.R.B. 2020-38, 567, is modified.
Employee Tax Deferral
In response to the coronavirus (COVID-19) disaster, President Trump issued a memorandum on August 8, 2020, directing the Treasury Secretary to use his Code Sec. 7508A authority to defer the withholding, deposit, and payment of the employee portion of the 6.2-percent old-age, survivors and disability insurance (OASDI) tax (Social Security tax) under Code Sec. 3101(a), and the Railroad Retirement Tax Act (RRTA) Tier 1 tax that is attributable to the 6.2-percent Social Security tax under Code Sec. 3201. The deferral was available only for tax on wages paid from September 1, 2020, through December 31, 2020, and only for employees whose biweekly, pre-tax pay was less than $4,000, or a similar amount where a different pay period applied.
The Treasury Secretary and the IRS then issued Notice 2020-65, directing employers that elected to apply the deferral to withhold and pay the deferred taxes ratably from wages and compensation paid between January 1, 2021, and April 30, 2021. Interest, penalties, and additions to tax would begin to accrue on May 1, 2021, on any unpaid applicable taxes.
Payment Period Extended
The recent COVID-related Tax Relief Act of 2020 (Division N, P.L. 116-260) extended the payment period, and required the Treasury Secretary to apply Notice 2020-65 by substituting “December 31, 2021” for “April 30, 2021” and substituting “January 1, 2022” for “May 1, 2021.”
Employers that elected to defer employees’ payroll taxes can now withhold and pay the deferred tax throughout 2021, instead of just during the first four months of the year.