29 Jan Updated Guidance on the Employee Payroll Tax Deferral
In late January, the IRS updated Notice 2020-65. It provides guidance regarding an executive memorandum signed last summer that allowed employers to defer the withholding, deposit, and payment of certain payroll tax obligations in 2020. The update reflects the changed deferral rules contained in the Consolidated Appropriations Act (CAA).
A Brief History
On August 8, 2020, a Presidential Memorandum allowed an employer to elect to defer withholding of the 6.2 percent employee share of the Social Security tax on wages between September 1, 2020 and December 31, 2020.
For affected taxpayers, Notice 2020-65 originally postponed the due date for the withholding and repayment of the applicable taxes until the period beginning on January 1, 2021 and ending on April 30, 2021.
The guidance also provided that the amount of such wages or compensation paid for a bi-weekly pay period must be less than the threshold amount of $4,000 or the equivalent threshold amount with respect to other pay periods.
The CAA requires the IRS to ensure that Notice 2020-65 is now applied by substituting “December 31, 2021” for “April 30, 2021” and by substituting “January 1, 2022” for “May 1, 2021” in each place it appears. In response, the relief provided by Notice 2020-65 is modified as follows:
For affected taxpayers, the due date for the withholding and payment of applicable taxes is postponed until the period beginning on January 1, 2021 and ending on December 31, 2021.
Thus, the due date for deferred applicable taxes to be repaid has now been extended from April 30, 2021 to December 31, 2021. Interest, penalties, and additions to tax will begin to accrue on January 1, 2022 for any unpaid applicable taxes.
Because December 31, 2021 is a legal holiday, payments made on January 3, 2022 (the next day that is not a Saturday, Sunday, or legal holiday) will be considered timely. Interest and penalties still begin to accrue on January 1, 2022 if payments are not made by January 3, 2022.
An affected taxpayer may, if necessary, arrange to otherwise collect the total applicable taxes from an employee. Presumably, this ‘if necessary’ rule covers a situation in which an employee leaves an affected taxpayer’s employment before the full amount of applicable taxes are withheld.
If your organization opted to avail itself of the payroll tax deferral (it was not required), the newly extended deadline likely comes as welcome relief. Contact us for answers to any questions you may have and for further information on Notice 2020-65 and the CAA.