The Internal Revenue Service has posted instructions for both employers and employees about how to handle the Form W-2 reporting for the payroll tax deferral under President Trump’s executive action.
Trump signed a memorandum in August to defer the 6.2 percent employee’s share of Social Security taxes from Sept. 1, 2020 until Dec. 31, 2020, but the taxes would need to be repaid by April 30 of next year. So far, relatively few companies have implemented the tax deferral as it would need to be repaid by either the employees or employer. However, the federal government and military are both implementing it. The payroll tax deferral only applies to employees with biweekly pre-tax income of less than $4,000, with the goal of stimulating the economy in the midst of the coronavirus pandemic.
The IRS has created a web page that provides more detailed guidance for employers and employees than the limited information the IRS rushed out in Notice 2020-65 in late August, shortly before the Sept. 1 start date.
For employers, the IRS said that if they have deferred the employee portion of Social Security tax when reporting total Social Security wages paid to an employee, on the W-2, they should include 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 shouldn’t include in box 4 (Social Security tax withheld) any deferred employee Social Security taxes that haven’t been withheld.
Any Social Security tax deferred in 2020 that’s withheld in 2021 and isn’t reported on the 2020 Form W-2 should be reported in box 4 (Social Security tax withheld) on Form W-2c, Corrected Wage and Tax Statement.
“On Form W-2c, employers should enter tax year 2020 in box c and adjust the amount previously reported in box 4 (Social Security tax withheld) of the Form W-2 to include the deferred amounts that were withheld in 2021,” said the IRS.
All Forms W-2c should be filed with the Social Security Administration, along with Form W-3c, Transmittal of Corrected Wage and Tax Statements, as soon as possible after employers have finished withholding the deferred amounts.
The IRS then goes on to provide further instructions for employers, including how to report any deferred withholding taxes on railroad retirement compensation.
For employees, the IRS provides detailed instructions on what to do if they had multiple employers in 2020, and there’s a correction in box 4 or 14 of the Form W-2c, Corrected Wages and Tax Statement, for 2020.