To address some of the economic disruption caused by the pandemic last year, collection of the 6.2 percent employee payroll tax was delayed in accordance with a presidential executive action. On Jan. 19, the Internal Revenue Service announced that it extended the period for repaying Social Security taxes that need to be remitted from the deferred payroll tax withholding from four to six months.
Summer deferral
In Aug., the executive action deferred, but did not lower, tax obligations for employees earning up to $4,000 every two weeks. This order was issued after Congress did not extend enhanced unemployment benefits or pass a new economic stimulus package. The deferral covered private employers but did not apply to the executive branch or the military.
But many private sector companies did not postpone tax payments because of its administrative complications. Employers also had concerns about potential confusion among employees about a sudden increase in their 2021 withholding to pay those deferred taxes. Companies believed they could have been held responsible for taxes owed by employees who quit their jobs.
There were also bi-partisan and business group objections to this deferment. The U.S. Chamber of Commerce and at least 30 other business groups presented their opposition to this proposal in an Aug. 18 letter to Congress. They said that they would likely reject deferral, would continue to withhold required payroll taxes, and pay the taxes to the government.
Repayment period lengthened
This month, the IRS lengthened this repayment period after employers began deducting the deferred payments from many federal workers and employees at private sector employers that elected to take advantage of the four-month payroll tax deferment.
Employers will have a 12-month extension, or until the end of 2021, for repaying Social Security taxes that were not withheld last year. This was an increase from the original four-month deferral period. Interest, penalties, and additions to tax for unpaid benefits will begin to accrue on Jan. 1, 2022, according to the IRS announcement.
The changing economic and tax environment is challenging and confusing. An attorney can help provide guidance to businesses and employers on tax issues and represent their interests in investigations and audits.