The Internal Revenue Service on Jan. 19 announced it was extending from four to 12 months the period available to employers for repaying Social Security taxes not withheld from employee paychecks in 2020.
Former President Donald Trump in August delayed collection of the 6.2% employee payroll tax from September through December, after Congress failed to extend enhanced unemployment benefits or agree on a new economic stimulus package.
The IRS lengthened the repayment period after employers this month began deducting the deferred payments from the paychecks of many federal workers and employees at private-sector companies that had opted into the four-month payroll tax holiday.
President Trump's executive action in August deferred, rather than reduced, tax obligations for employees earning up to $4,000 every two weeks.
Many private-sector companies decided not to postpone tax payments because of the administrative complexity and potential confusion among employees about a sudden increase in 2021 withholding to pay the deferred tax.
Additionally, employers were concerned they'd have to pay the tax owed by employees who quit their jobs.
The order allowed private companies to opt out but not the executive branch and the military; they were required to defer payroll tax withholding last year, drawing fire from public sector union leaders.
"President Trump's payroll tax scheme is a scam that leaves workers with a substantial tax bill right after the holiday season,'' Everett Kelley, American Federation of Government Employees national president, said in an Aug. 31 statement. He alleged that the Trump Administration's ultimate goal was to defund Social Security.
Business groups and lawmakers from both parties also opposed the tax deferment.
"Many of our members consider it unfair to employees to make a decision that would force a big tax bill on them next year," the U.S. Chamber of Commerce and more than 30 other organizations said in an Aug. 18 letter to congressional leaders. "Many of our members will likely decline to implement deferral, choosing instead to continue to withhold and remit to the government the payroll taxes required by law."
The IRS said in its Jan. 19 statement that interest, penalties and additions to tax for any unpaid balances will begin to accrue on Jan. 1, 2022.