Woman Working on Budget

IRS Issues New Guidance on President Trump’s Payroll Tax Deferral Executive Order

The IRS has recently released additional guidance on President Trump's Executive Order deferring certain payroll taxes. Under Notice 2021-11 the IRS has extended the repayment period for employers who elected to defer certain employee taxes under the Executive Order.

Background

Generally, employees and employers each pay half of the total 12.4% Social Security tax due for each worker. The CARES Act has previously provided for a deferral of the employer’s share of payroll taxes. President Trump signed an Executive Order on August 8, 2020 allowing the deferral of the employee’s share of Social Security for the period of September 1, 2020 through December 31, 2020 for certain employees. The Executive Order did not call for the deferral of the employee’s share of Medicare tax on wages, so these amounts will still need to be withheld and remitted during this deferral period. The deferral only applied to employees with bi-weekly pre-tax income that is less than $4,000 (capping qualified employees to those earning less than approximately $104,000 a year). Employees earning over this amount would not be eligible for deferral.

Notice 2020-65

The Treasury Department released Notice 2020-65 on, August 28th, which provided guidance on the Executive Order’s payroll tax deferral. Notice 2020-65 specifically addressed the inability to forgive these deferred taxes, indicating that absent Congressional action the deferred payroll taxes would not be forgiven and would instead be due at a later date. This notice specifically stated that taxes were only deferred until January 1, 2021 at which time repayment procedures were set to begin. The Notice specifically indicates that Employers who choose to defer the payroll taxes will have an obligation to repay those deferrals by April 30, 2021 or be subject to penalties and interest.

Notice 2021-11 and the Consolidated Appropriations Act

This week the IRS released Notice 2021-11 which supersedes and changes some of the key elements of Notice 2020-65. Per Notice 2020-65 any taxes deferred under Notice 2020-65 would be withheld and paid ratably from employee wages between Jan. 1, 2021, until April 30, 2021, this was extended by the Consolidated Appropriations Act 2021 until December 31, 2021. Notice 2021-11 now formally reflects this updated period, modifying the original language of Notice 2020-65. Thus, repayment of any deferred payroll taxes must be repaid by December 31, 2021. Penalties, interest and additions to tax will now start to apply on Jan. 1, 2022, for any unpaid balances.

If there are any questions about how this payroll tax deferral may impact you or your business, please reach out to your HBK Tax Advisor.

Please indicate the industry that your company operates in: *

About the Author(s)
Cassandra Baubie is an Senior Associate at HBK CPAs & Consultants and is a member of its Tax Advisory Group (TAG). Cassandra joined HBK in 2017. She works in the firm’s Youngstown, Ohio office. She has experience in tax law research and writing. Prior to joining HBK, she worked for Jurist.org, a global legal news organization, and was a member of the University of Pittsburgh Tax Law Review Journal. Cassandra also worked for the University of Pittsburgh School of Law’s Low-Income Tax Clinic where she performed IRS litigation and Tax Court work and provided compliance work for low income individuals and businesses. Cassandra focuses on issues pertaining to State and Local Taxation (SALT), as well as flow through entity taxation. She has been involved in numerous sales and use tax, franchise tax, and corporate income tax audits, VDA’s, and refund requests. She focuses on complex sales and use tax compliance planning, nexus studies and on-site review and training for all SALT related issues, and has managed various engagements as the in-charge team member and has significant experience in multi-state tax issues.
Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

RECOMMENDED ARTICLES