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The IRS has issued employer instructions for reporting on Forms W-2, Wage and Tax Statement, and Form W-2c, Corrected Wage and Tax Statement, the Social Security taxes deferred and repaid under Notice 2020-65.

Background

On August 8, 2020, a Presidential Memorandum was issued, directing the Secretary of the Treasury to use his authority under IRC Section 7508A to defer the withholding, deposit and payment of certain payroll tax obligations in light of the COVID-19 emergency. Subsequently, Treasury and the IRS issued Notice 2020-65 on August 28, 2020. The Notice gives employers 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 biweekly pay period (or the equivalent threshold amount for other pay periods), determined on a pay period-by-pay period basis. To pay the deferred amount of the employee portion of Social Security tax, the employer will ratably withhold the amount of Social Security tax deferred from the employees' paychecks from January 1, 2021 through April 30, 2021.

Read more details about the employee Social Security tax deferral here and the IRS attorney responses to questions about the program. View our Alert on the Form 941 instructions. See our survey results: Is your employer participating in the employee Social Security tax deferral?

Reporting 2020 employee Social Security tax deferrals on Form W-2

If the employer deferred withholding of the employee portion of Social Security tax in 2020 under Notice 2020-65, the employer must include on Form W-2, box 3 (Social Security wages) and box 7 (Social Security tips) the total Social Security wages/tips paid to the employee without regard to the deferral. On Form W-2, box 4 (Social Security tax withheld), the employer must show only the Social Security taxes that were actually withheld from the employee's wages and not the Social Security tax withholding that was deferred.

Similarly, when reporting total Railroad Retirement Tax Act (RRTA) compensation on Form W-2, the employer must include any compensation for which it deferred withholding of the employee portion of the Social Security tax equivalent of the Tier 1 RRTA tax and is instructed not to include in box 14 any amount of deferred employee Tier 1 RRTA tax that was not withheld.

Reporting 2021 employee Social Security tax repayments on Form W-2c, Corrected Wage and Tax Statement

Employee Social Security taxes that were deferred in 2020 and withheld or otherwise repaid in 2021 under Notice 2020-65, and that were not reported on the 2020 Form W-2, should be reported on Form W-2c, box 4 (Social Security tax withheld).

On Form W-2c, employers should enter tax year "2020" in box c, report the amount previously reported under the Previously Reported column for box 4 (Social Security tax withheld), and report the adjusted amount under the Correct Information column to include the amounts that were deferred in 2020 and withheld and deposited in 2021.

Example:

In 2020, Company A withheld Social Security tax of $4,000 and deferred Social Security tax withholding of $100 under IRS Notice 2020-65. According to IRS instructions, Company A reported $4,000 on the 2020 Form W-2 in box 4. In 2021, Company A withheld the $100 of Social Security tax deferred from 2020. The Form W-2c is completed in 2021 for tax year 2020 as follows:

Employee RRTA tax deferred in 2020 under Notice 2020-65 that is withheld in 2021 and not reported on the 2020 Form W-2 should be reported in box 14 on Form W-2c for 2020. On Form W-2c, employers should adjust the amount previously reported as Tier 1 tax in box 14 of the Form W-2 to provide the correct information including the deferred amounts that were withheld in 2021.

All Forms W-2c should be filed with the Social Security Administration (SSA), along with Form W-3c, Transmittal of Corrected Wage and Tax Statements, as soon as possible after the employer has completed withholding the deferred amounts in 2021. If Forms W-2c exceed 249, they must be filed electronically. Employers are instructed to refer to the 2021 General Instructions for Forms W-2 and W-3, which are expected to be published in January 2021.

Suggested instructions for employees receiving Form W-2c for repayment of employee portion of the Social Security deferral

When employers furnish a copy of Form W-2c to employees in 2021 reflecting the adjusted amount of Social Security tax withheld for 2020, the IRS suggests providing them with the following instructions:

If you had only one employer during 2020 and your Form W-2c, Corrected Wages and Tax Statement, for 2020 only shows a correction to box 4 (or to box 14 for employees who pay RRTA tax) to account for employee Social Security (or Tier 1 RRTA tax) that was deferred in 2020 and withheld in 2021 pursuant to Notice 2020-65, no further steps are required. However, if you had two or more employers in 2020 and your Form W-2c for 2020 shows a correction to box 4 (or to box 14 for employees who pay RRTA tax) to account for employee Social Security (or Tier 1 RRTA tax) that was deferred in 2020 and withheld in 2021, you should use the amount of Social Security tax (or Tier 1 RRTA tax) withheld reported on the Form W-2c to determine whether you 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 your employers to exceed the maximum amount ($8,537.40) of tax that you owe, or increases an already existing excess amount of employee Social Security tax (or Tier 1 RRTA tax withheld), then you should file Form 1040-X, Amended U.S. Individual Income Tax Return, to claim a credit for the excess Social Security tax (or Tier 1 RRTA tax) withheld. See the instructions to line 10 of Schedule 3 in the 2020 Instructions for Form 1040 and Form 1040-SR for more information.

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