Employers can withhold, make payments of deferred Social Security taxes from 2020

IR-2021-17, Jan. 19, 2021

WASHINGTON − The Internal Revenue Service today released Notice 2021-11 addressing how employers who elected to defer certain employees’ taxes can withhold and pay the deferred taxes throughout 2021 instead of just the first four months of the year.

In response to a presidential memorandum signed Aug. 8, 2020, Notice 2020-65 was issued on Aug. 28, 2020, giving employers the option to defer certain employees’ Social Security taxes from Sept. 1, 2020, to Dec. 31, 2020. This applied to employees paid less than $4,000 every two weeks, or an equivalent amount for other pay periods, with each pay period considered separately. The taxes, which are technically called Old Age, Survivors and Disability Insurance, or OASDI, are calculated at 6.2% of employees’ wages.

Any taxes deferred under Notice 2020-65 are withheld and paid ratably from employee wages between Jan. 1, 2021, until April 30, 2021. However, the Consolidated Appropriations Act, 2021, signed into law December 27, extended the period that the deferred taxes are withheld and paid ratably. The period is now for the entire year − from Jan. 1, 2021, through Dec. 31, 2021. Notice 2021-11 makes changes to Notice 2020-65 to reflect this extended period. Payments made by Jan. 3, 2022, will be considered timely because Dec. 31, 2021, is a legal holiday. Penalties, interest and additions to tax will now start to apply on Jan. 1, 2022, for any unpaid balances

Employees could see their deferred taxes being collected immediately. Employees should check with their organization’s payroll point of contact on what their collection schedule will be.

Additional tax relief related to the COVID-19 pandemic can be found on IRS.gov.

Part III - Administrative, Procedural, and Miscellaneous

Additional Relief with Respect to Employment Tax Deadlines Applicable to Employers

Affected by the Ongoing Coronavirus (COVID-19) Disease 2019 Pandemic

Notice 2021-11

I. PURPOSE

Pursuant to section 274 of the COVID-related Tax Relief Act of 2020, which was

enacted as Subtitle B of Title II of Division N of the Consolidated Appropriations Act,

2021, Pub. L. 116-260, 134 Stat.1182 (Dec. 27, 2020), this notice modifies Notice

202065, 2020-38 I.R.B. 567 (September 14, 2020), by extending the time period during

which employers must withhold and pay Applicable Taxes (as defined in Notice 2020-65

and described herein). Specifically, this notice provides that the end date of the period

during which employers must withhold and pay Applicable Taxes is postponed from

April 30, 2021, to December 31, 2021, and associated interest, penalties, and additions

to tax for late payment with respect to any unpaid Applicable Taxes will begin to accrue

on January 1, 2022, rather than on May 1, 2021.

II. BACKGROUND

On August 8, 2020, the President of the United States issued a Presidential

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Memorandum directing the Secretary of the Treasury to use his authority pursuant to

section 7508A of the Internal Revenue Code (Code) to defer the withholding, deposit,

and payment of certain payroll tax obligations. Section 7508A provides the Secretary of

the Treasury or his delegate (Secretary) with authority to postpone the time for

performing certain acts under the internal revenue laws for a taxpayer determined by

the Secretary to be affected by a Federally declared disaster as defined in section

165(i)(5)(A). Pursuant to section 7508A(a), a period of up to one year may be

disregarded in determining whether the performance of certain acts is timely under the

internal revenue laws.

In Notice 202065, the Secretary determined that employers that are required to

withhold and pay the employee share of social security tax under section 3102(a) or the

railroad retirement tax equivalent under section 3202(a) are affected by the COVID-19

emergency for purposes of the relief described in the Presidential Memorandum

(Affected Taxpayers). For Affected Taxpayers, Notice 202065 postponed the due date

for the withholding and payment of the tax imposed by section 3101(a), and so much of

the tax imposed by section 3201 as is attributable to the rate in effect under section

3101(a), on Applicable Wages (collectively Applicable Taxes) until the period beginning

on January 1, 2021, and ending on April 30, 2021. Notice 2020-65 also provided that

for purposes of the notice, Applicable Wages means wages as defined in section

3121(a) or compensation as defined in section 3231(e) paid to an employee on a pay

date during the period beginning on September 1, 2020, and ending on December 31,

2020, but only if the amount of such wages or compensation paid for a bi-weekly pay

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period is less than the threshold amount of $4,000, or the equivalent threshold amount

with respect to other pay periods, determined on a pay period-by-pay period basis.

Section 274 of the COVID-related Tax Relief Act of 2020 requires the Secretary

to ensure that Notice 2020–65, and any successor or related regulation, notice, or

guidance, is 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.

III. MODIFICATION TO NOTICE 202065

In response to section 274 of the COVID-related Tax Relief Act of 2020, 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. 1

An Affected Taxpayer must withhold and pay the total Applicable Taxes deferred

under Notice 2020-65 ratably from wages and compensation paid between January 1,

2021 and December 31, 2021, or interest, penalties, and additions to tax will begin to

accrue on January 1, 2022, with respect to any unpaid Applicable Taxes. If necessary,

an Affected Taxpayer may make arrangements to otherwise collect the total Applicable

Taxes from an employee.

IV. EFFECT ON OTHER DOCUMENTS

1 Section 7503 of the Code provides that “when the last day prescribed under authority of the internal revenue laws

for performing any act falls on Saturday, Sunday, or a legal holiday, the performance of such act shall be considered

timely if it is performed on the next succeeding day which is not a Saturday, Sunday, or a legal holiday.” The term

“legal holiday” includes a legal holiday in the District of Columbia. 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 by operation of section 7503 of the Code. Because section 7503 of the Code does not operate to extend the

due date for payment, interest and penalties still begin to accrue on January 1, 2022 if payments are not made by

January 3, 2022.

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Notice 2020-65 is modified.

V. DRAFTING INFORMATION

The principal authors of this notice are attorneys of the Office of Associate Chief

Counsel, Employee Benefits, Exempt Organizations, and Employment Taxes, with the

participation of staff from other offices. For further information regarding the guidance

under this notice, please call (202) 317-4774 (not a toll-free number).