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.
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.
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.