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IRS Guidance on Reporting Payroll Tax Deferral


The IRS has just posted new guidance for employers that must report payroll tax deferral for employees on their Form W-2 for 2020.  In conjunction, the IRS also announced that it had updated Form 941, Employer’s Quarterly Federal Tax Return, to reflect any deferrals.

Nov 2nd 2020
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The tax form changes relate back to an executive order issued by President Trump in August. The order authorized employers to choose to defer the employee portion of the 6.2 percent Social Security tax required for the period from September 1 through December 31 for eligible employees earning less than $4,000 each biweekly pay period (or a comparable amount for another pay period).

But the reprieve is only temporary. Employers are required to withhold the appropriate Social Security tax from employee paychecks from January 1, 2021, through April 30, 2021. The IRS rushed out initial guidance soon after the order was issued (Notice 2020-65, 8/28/20). Now it is providing more insights into W-2 reporting.

According to the new posting by the IRS, employers that have deferred the employee portion of Social Security tax should include on Forms W-2 any wages for which they deferred withholding and payment of employee Social Security tax in box 3 (Social Security wages) and/or box 7 (Social Security tips). However, they should not include in box 4 (Social Security tax withheld) any deferred employee Social Security tax that was not withheld.

If Social Security tax deferred in 2020 is withheld in 2021 and isn’t reported on a 2020 Form W-2, it should be reported in box 4 (Social Security tax withheld) on Form W-2c, Corrected Wage and Tax Statement.

Finally, all Forms W-2c should be filed with the Social Security Administration (SSA), along with Form W-3c, Transmittal of Corrected Wage and Tax Statements, as soon as possible after an employee has completed withholding the deferred amounts. Note: The IRS also provides further instructions for employers on how to report any deferred withholding tax on railroad retirement compensation.

What about employees? The IRS provides detailed instructions on what to do if employees worked for multiple employers in 2020 and received a correction in box 4 or 14 of the Form W-2c, Corrected Wages and Tax Statement, for 2020.

For more information: The IRS has created a webpage that provides more detailed guidance for both employers and employees.

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