IRS releases final instructions for payroll tax form related to COVID-19 relief

In response to the COVID-19 pandemic, the federal government enacted legislation that includes deferral of the employer’s portion of Social Security tax. The IRS then significantly revised Form 941-X, “Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund,” to allow for adjustments and corrections to COVID-19 tax relief on previously filed Forms 941.

The IRS recently released the final version of October 2020 instructions for Form 941-X that accounts for adjusting amounts previously reported as the deferred employee’s share of Social Security tax.

Employee deferral

On August 8, 2020, as a form of COVID-19 tax relief, President Trump signed an executive memorandum allowing employers to opt to defer the employee’s portion of Social Security tax for employees who earn less than $4,000 biweekly or its equivalent under other pay frequencies from September 1, 2020, through December 31, 2020.

Later that month, the IRS released Notice 2020-65 that postpones the withholding and remittance of the employee share of Social Security tax ratably between Jan. 1, 2021, and April 30, 2021. Penalties, interest and additions to tax will begin to accrue on May 1, 2021, for any unpaid taxes. The Notice states that, if necessary, the employer may arrange to collect the total applicable taxes from the employee. The postponement of the withholding and remittance of the employee’s share of Social Security tax is optional for the employer.

Form 941-X final instructions

The final instructions are labeled “(Rev. October 2020).” The October 2020 Form 941-X has been revised to allow for correcting the deferred amount of the employee share of Social Security tax on wages paid on or after September 1, 2020, and before January 1, 2021.

Form 941-X, line 24, is now used to correct the deferral of the employer and employee share of Social Security tax for the third and fourth quarters of 2020. For the second quarter of 2020, Form 941-X, line 24, is used to correct only the deferral of the employer share of Social Security tax.

Form 941-X, line 33, has been renumbered to line 33a, and new line 33b is used to correct the portion of the deferred amount of the employee share of Social Security tax for the third and fourth quarters of 2020 included on Form 941, line 13b.

Employers may correct only the deferred employee share of Social Security tax if the amount originally reported on Form 941, line 13b wasn’t the amount actually deferred. The amount may not be deferred if the correct amount of the employee’s share of Social Security tax was already paid. In other words, an employer may not retroactively defer the employee’s share of Social Security tax by filing Form 941-X.

File carefully

If your organization deferred the employee’s portion of Social Security tax under the conditions of the COVID-19 relief offered, be sure to review the filing requirements carefully. Contact us for further information and assistance.