Deferred Employee Social Security Tax W-2 Guidance
Updated: Nov 11, 2020
The IRS released Form W-2 guidance on its website for employers and employees regarding employee Social Security tax that is deferred under Notice 2020-65.
On August 28, the IRS issued Notice 2020-65 in response to a Presidential Memorandum that allowed deferral of the withholding, deposit, and payment of certain employee payroll tax obligations. Under the notice, employers have the option to defer the employee portion of Social Security tax from September 1, 2020, through December 31, 2020, for eligible employees who earn less than $4,000 per bi-weekly pay period. The employer then will ratably withhold the amount of deferred tax from the employees' paychecks from January 1, 2021, through April 30, 2021 to pay back this amount.
Instructions for Employers
The guidance provides the following instructions to employers:
When reporting total Social Security wages paid to an employee on Form W-2, the employer should include any wages for which the employer deferred withholding and payment of employee Social Security tax in box 3 (Social security wages) and/or box 7 (Social security tips). The employer should only include in Box 4 (Social security tax withheld) any amount of deferred tax that has been withheld. Do NOT include the withheld portion.
Employee Social Security tax deferred in 2020 that is withheld in 2021 and not 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, the employer should enter the 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. The employer should file all Forms W-2c with the Social Security Administration (along with Form W-3c, Transmittal of Corrected Wage and Tax Statements) as soon as possible after the employer has finished withholding the deferred amounts. The employer should also furnish Forms W-2c to employees.
(More information on completing and filing Forms W-2c and W-3c will be published in the 2021 General Instructions for Forms W-2 and W-3, in January 2021.)
Instructions for Employees
For employees whose employers deferred the employee portion of Social Security tax (or the RRTA equivalent tax), the guidance states the following:
If an employee had only one employer during 2020 and his or her 2020 Form W-2c only shows a correction to box 4 (or to box 14 for employees who pay RRTA tax) to account for the tax that was deferred in 2020 and withheld in 2021, no further steps are required.
If an employee had two or more employers in 2020 and the Form W-2c for 2020 shows a correction to box 4 (or to box 14 for employees who pay RRTA tax) to account for the tax that was deferred in 2020 and withheld in 2021, the employee should use the amount of Social Security (or Tier 1 RRTA) tax withheld reported on the Form W-2c to determine whether he or she had excess Social Security tax (or Tier 1 RRTA tax) on wages (or compensation) paid in 2020.
If the corrected amount in box 4 of the Form W-2c for 2020 causes the total amount of employee Social Security tax (or equivalent portion of the Tier 1 RRTA tax) withheld by all of the employee’s employers to exceed the maximum amount of tax owed ($8,537.40 for 2020) or increases an already existing excess amount of employee Social Security tax (or Tier 1 RRTA tax) withheld, the employee should file Form 1040-X, Amended U.S. Individual Income Tax Return, to claim a credit for the excess tax withheld.
For additional information on employee Social Security tax deferral on Form W-2, click here.
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