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IRS Notifies Employers of Extension to Pay Back Payroll Tax

Posted on Jan. 20, 2021

Employers that chose to implement President Trump’s payroll tax deferral order and need to get that money back from employees now have more time to do so.

The IRS on January 19 released Notice 2021-11, 2021-6 IRB 1, which says businesses that opted into the deferral of employees’ portions of payroll taxes for the last four months of 2020 now have a year to collect and pay those amounts back.

In August 2020 President Trump issued an executive memorandum that gave employers the option to defer the employee portion of Social Security tax for workers under a specific income limit. The deferral applied to amounts paid between September 1, 2020, and December 31, 2020.

The temporary suspension was unpopular among Democratic lawmakers, who in September asked the Government Accountability Office to determine whether IRS guidance (Notice 2020-65, 2020-38 IRB 567) on deferring payroll taxes for the rest of the year could be defined as a “rule” subject to the Congressional Review Act. If so, the Senate would have the power to overturn the rule with a simple majority.

Notice 2020-65 said payroll taxes that would otherwise be withheld from September through December 2020 were due between January 1, 2021, and April 30, 2021. Practitioners said it probably wouldn’t be wise for employers to implement the deferral because it would essentially mean they’d have to double-withhold the employee portion of Social Security tax in early 2021.

The National Association of Manufacturers and the U.S. Chamber of Commerce also said the deferral program was unworkable.

Under the Consolidated Appropriations Act, 2021 (P.L. 116-260), the period for which the deferred taxes are withheld and paid has been extended to encompass the entire 2021 year. In light of the law, the IRS issued the latest guidance notifying electing businesses of the right to defer paying back those amounts, it said in a release (IR-2021-17).

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