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

Yesterday, the IRS released final regulations that aim to prevent identity theft by permitting, but not requiring, employers to truncate the taxpayer identification numbers (TINs) on copies of Forms W-2 and Forms W-2c furnished to employees.  The regulations finalize proposed rules issued in 2017.  Generally, this rule applies to Forms W-2 required to be filed or furnished after December 31, 2020, so employers still have time to decide whether to implement the change.  The delayed effective date is intended to allow states and local governments time to update their rules to permit the use of truncated TINs, if they do not already do so.

The TIN for most individuals (and all employees whose income is required to be reported on Form W-2) is his or her social security number (SSN); therefore, instead of including an individual’s full nine-digit SSN, the final rule permits employers to truncate this sensitive personal identifying information.  In place of the full SSN, employers may use a truncated TIN, which is in the format of XXX-XX-#### or ***-**-#### with the #’s replaced by the final four digits of the employee’s social security number.  Full TINs are still required on copies of Form W-2 filed with the Social Security Administration, however.  In addition, payers of third-party sick pay must include full TINs on statements to employers of employees to whom the third-party paid sick pay.  However, truncated TINs may be used on Forms W-2 that report third-party sick pay issued by employers to employees.


Continue Reading New Rule Permits Employers to Include Truncated TINs on Forms W-2 and Forms W-2c