FICA Taxes

Recently released IRS Notice 2021-11, implements the extension of the period for collecting from employees and depositing employee Social Security tax that was deferred in the last four months of 2020.  IRS Notice 2020-65 (see earlier coverage) had specified that the employer “must withhold and pay the total [deferred 2020 taxes] . .

For employers who decided to defer the employee share of Social Security taxes on wages paid from September 1 to December 31, 2020, pursuant to President Trump’s August 8 presidential memorandum, the employer’s obligation to collect those deferred amounts from employees’ paychecks is fast approaching.  Included among our previous posts discussing the deferral, which was voluntary, is a discussion of IRS Notice 2020-65.  The notice specifies that the employer “must withhold and pay the total [deferred 2020 taxes] . . . ratably from wages . . . paid between January 1, 2021, and April 30, 2021” and further warns that “if necessary, the [employer] may make arrangements to otherwise collect the total [deferred taxes] from the employee.”  (See earlier coverage.)
Continue Reading Unpleasant Surprise May Await Employers That Deferred Employee Social Security Tax

On Friday, October 30, the IRS provided guidance regarding the proper reporting on Form W-2 for employers who deferred the withholding of the employee share of Social Security tax under Notice 2020-65. (See earlier coverage.)  Based on the IRS guidance, employers should report FICA wages up to the OASDI (Social Security) wage base in Box 3 of the 2020 Form W-2.  Only the amount of Social Security tax actually withheld during 2020 should be reported in Box 4 of the form.

In 2021, if the employer withholds the 2020 deferred Social Security taxes, the employer must file a Form W-2c for 2020 reporting the additional withholding in Box 4.  Although the IRS guidance does not address this, if the employer pays in 2021 the employee’s share of Social Security taxes that were deferred in 2020, the employer must still file a Form W-2c reporting the amount as withheld Social Security taxes in Box 4.  Moreover, the employer would also be required to include the amount of taxes paid by the employer on the employee’s behalf as additional wages in Boxes 1, 3 (up to the OASDI wage base), and 5 on the employee’s 2021 Form W-2.  Because the employer’s payment of the employee’s deferred tax constitutes additional wages to the employee in 2021, these amounts will need to be grossed up to account for employment taxes on the amount of the employee’s tax paid by the employer if those taxes are not withheld from the employee’s other 2021 wages.
Continue Reading IRS Provides Guidance on Preparation of Forms W-2 for Employees with Deferred Social Security Tax Withholding

On October 13, the Social Security Administration announced that the Old Age, Survivors, and Disability Insurance (“OASDI”) wage base will increase to $142,800 for 2021.  The 3.7% increase follows a 3.6% increase in the wage base for 2020 and a 3.5% increase for 2019.  Wages in excess of the wage base paid by an employer

Late Friday, the IRS released Notice 2020-65 providing guidance to employers regarding the implementation of President Trump’s presidential memorandum issued on August 8, 2020.  The memorandum directed the Secretary of the Treasury to defer the withholding, deposit, and payment of employee Social Security taxes for the period from September 1 to December 31, 2020 (see earlier coverage of the presidential memorandum).  Shortly after the memorandum was released, Secretary Mnuchin confirmed that the deferral is voluntary and that employers may continue to withhold and deposit employee Social Security taxes in accordance with their normal schedule (see earlier coverage of Sec. Mnuchin’s confirmation that deferral is voluntary).
Continue Reading IRS Issues Notice 2020-65 Providing Guidance on Employee Social Security Tax Deferral

Employers electing to defer the deposit of the employer share of Social Security taxes on wages, as permitted under section 2302 of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, are challenged with how to take the deferral in conjunction with the COVID-19 payroll tax credits—the employee retention credit authorized by section 2301 of the CARES Act and, if applicable, the two payroll tax credits applicable to employers employers of 500 or fewer employees that are required to provide paid leave under the Families First Coronavirus Relief Act (“FFCRA”).

The benefit of electing to defer the deposit of the employer share of Social Security taxes or claiming payroll tax credits may be realized in real time when the employer runs its payroll providing a near-immediate cash injection into the employer’s business to help defray the cost of employee wages.  In other words, the employer does not have to wait to enjoy the benefit until it files its quarterly employment tax return (Form 941).  The IRS is in the process of revising that return so that the reporting of the deferral and credits are reconciled with the payroll taxes (e.g., employer share of FICA taxes, the employee share of FICA taxes and federal income tax withholding) paid and withheld on payments made to employees during the calendar quarter.
Continue Reading A Primer for Employers: How to Stack the Employer Social Security Tax Deferral with the COVID-19 Payroll Tax Credits

Over the last few years, the Justice Department has worked with the IRS to more aggressively prosecute cases involving employment tax noncompliance and the failure to remit trust fund taxes to the U.S. Treasury.  Trust fund taxes are taxes withheld from the wages of employees such as federal income tax withholding and FICA tax withholding.  Owners, corporate officers, and employees who are responsible for remitting such taxes may also be found to be personally liable for the failure to pay over trust fund taxes and, as the following described cases indicate, they may face criminal prosecution for such failures. 
Continue Reading Justice Department Continues Criminal Prosecutions in Employment Tax Cases

The Justice Department has again demonstrated its willingness to prosecute corporate executives for failing to remit employment taxes.  On March 22, 2019, the Department of Justice issued a press release to announce that the U.S. District Court for the Eastern District of North Carolina sentenced a North Carolina man to 30 months in prison, restitution of $1.686 million, and three years of supervised released following completion of his sentence.  The executive served in various official capacities for OneCare, Inc., a mental health service provider, including as the corporation’s President.  From 2010 to 2013, OneCare withheld, but failed to pay over, employment taxes in the amount of almost $1.7 million.  On May 2, 2018, the executive was charged with, among other charges, one count of Willful Failure to Collect or Pay Over Tax.  He ultimately entered into a plea agreement that required him to plead guilty to a single count of Willful Failure to Collect or Pay Over Tax.
Continue Reading Justice Department Continues Aggressive Enforcement for Trust Fund Tax Failures