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Updated Guidance on the Employee Payroll Tax Deferral

  • Learn about the executive memorandum that allowed employers to defer the withholding, deposit, and payment of certain payroll taxes.
  • Discover details about the latest guidance regarding these tax deferrals.
  • Learn more about the extended deadlines and new due dates.
  • Discover when penalties and interest will start to accrue on unpaid taxes.

In late January, the IRS updated Notice 2020-65. It provides guidance regarding an executive memorandum signed last summer. The memorandum allowed employers to defer the withholding, deposit and payment of certain payroll tax obligations in 2020. The update reflects the changed tax deferral rules contained in the Consolidated Appropriations Act (CAA). Fiducial has the details below!

A brief history of the tax deferral

On August 8, 2020, a Presidential Memorandum allowed an employer to elect to defer withholding of the 6.2% employee share of the Social Security tax. The deferral applied to wages paid 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. The new due date extends 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 equal less than the threshold amount of $4,000, or the equivalent threshold amount with respect to other pay periods.

Updated Guidance on the Employee Payroll Tax Deferral

Dates extended

The CAA requires the IRS to ensure that Notice 2020-65 now applies 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, modifications of the the relief provided by Notice 2020-65 are as follows:

For Affected Taxpayers, the CAA delayed the due date for the withholding and payment of Applicable Taxes until the period beginning on January 1, 2021, and ending on December 31, 2021.

So, the due date to repay deferred applicable taxes now extends 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’s not a Saturday, Sunday or legal holiday) will be considered timely. Interest and penalties still begin to accrue on January 1, 2022, if payments aren’t 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.

Welcome relief for those who chose tax deferral

If your organization opted to avail itself of the payroll tax deferral (though you did not have to), the newly extended deadline likely gives you some relief. Have questions or need further information on Notice 2020-65 and the CAA? Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations to discuss your situation.

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