On October 1, 2020, the IRS released instructions for Form 941 providing additional guidelines for reporting deferred Social Security taxes pursuant to the President’s Memorandum (discussed previously on our blog) and IRS Notice 2020-65.
On August 8, 2020, the Presidential Memorandum directed the Secretary of the Treasury to use his authority pursuant to section 7508A of the Internal Revenue Code to defer the withholding, deposit, and payment of certain payroll tax obligations.
In Notice 2020-65, the IRS provided additional guidance for the deferral of certain payroll tax obligations pursuant to section 7508A of the Internal Revenue Code. Notice 2020-65 provided that the due date for withholding and payment of the employee share of social security tax on applicable wages is postponed until the period beginning on January 1, 2021 and ending on April 30, 2021. Applicable wages are social security wages of less than $4,000 in any biweekly pay period (or the equivalent threshold amount for other pay periods), paid on a pay date during the period beginning on September 1, 2020, and ending on December 31, 2020.
Form 941 Instructions
The IRS revised Form 941 to allow employers that defer the withholding and payment of the employee share of social security tax on wages paid on or after September 1, 2020, to include the deferral on line 13b. Employers will also report on line 24 the deferred amount of the employees share of social security tax.
Adjusting tax liability
Instructions to Form 941 illustrate how employers should adjust tax liability for the deferred amounts of Social Security tax. If employers defer payment of the employee and / or employer share of Social Security tax and pay the deferred amount in the same quarter it was deferred, employers should report the amount of the payment or deposit on Form 941, line 16, or on Schedule B (Form 941) on the date of the payment or deposit and not the date of liability.
Instructions to Form 941 provide additional guidance about how employers should compute the applicable wage amount to determine the eligibility of Social Security tax deferral when supplemental wages (e.g., bonuses and commissions) are paid on a single paycheck. Social Security taxes on bonuses and commissions are not eligible for the deferral of the withholding and payment of the employee’s share of Social Security taxes. Instructions to Form 941 clarify that a payment of supplemental wages is disregarded for purposes of the applicable wage amount if specifically identified on the same paycheck.
Paying the deferred amount of the employee share of Social Security tax
Employers deciding to defer an employee’s share of Social Security tax must withhold and pay the total deferred employee share of Social Security tax ratably from wages paid to the employee between January 1, 2021, and April 30, 2021. If necessary, the employer may make arrangements to otherwise collect the total deferred taxes from the employee. The employer is liable to pay the deferred taxes to the IRS and must do so before May 1, 2021.
Instructions to Form 941 also clarify that employee Social Security tax deferrals are not allowed for amounts already withheld and deposited in prior quarters.
Additionally, instructions to Form 941 clarify that employees can opt out of the employee Social Security tax deferral even if the employer has elected to participate.
 Instructions to Form 941 provide that “nothing prohibits employers from getting employee input on whether to apply the relief to postpone the due date for the withholding and payment of the employee share of Social Security tax on applicable wages paid to the employee.”
This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the authors and are not necessarily the views of any client.