Form W-2 reporting for the 2020 employee payroll tax deferral

Learn how employers who chose the payroll tax deferral starting with the first Sept. pay period through the end of 2020 should handle Forms W-2 and W-2c.

November 12, 2020

A presidential memorandum issued in August 2020 gave employers an option to defer the employee portion of social security tax starting with the first September pay period and continuing through the end of 2020. Deferred taxes are to be withheld along with 2021 social security taxes from paychecks from January 1, 2021, through April 30, 2021. Eligible employees are generally those earning less than $4,000 per bi-weekly pay period. See IRS Notice 2020-65 for details on the payroll deferral. For employers who took advantage of this option, the IRS has now provided updated instructions to employers and employees on the proper handling of deferred taxes on Forms W-2 and W-2c.

2020 Form W-2 reporting for payroll tax deferral

The full amount of wages subject to social security should be reported in box 3 (social security wages) and/or box 7 (social security tips). However, deferred social security taxes should not be reported in box 4 (social security tax withheld). That is, only social security taxes actually withheld in 2020 should be reported in box 4. Box 5 (Medicare wages and tips) and box 6 (Medicare tax withheld) should be completed in the usual manner.

Example: Leonardo works for Supreme Art Supply and earns $48,000 in social security wages in 2020. Supreme pays its employees on a semi-monthly (twice monthly) basis. Leonardo’s wages subject to social security tax are therefore $2,000 ($48,000 ÷ 24) per pay period. The employee portion of social security tax for each pay period is $124 ($2,000 × 6.2%).

Supreme took the option of deferring the employee portion of social security tax September through December – the last eight paychecks of the year. Supreme withheld $1,984 ($124 × 16 pay periods) in social security tax withholding during 2020. Medicare taxes will be the full $696 ($2,000 × 24 pay periods × 1.45%) because Medicare taxes were not deferred.

Supreme will complete Leonardo’s 2020 Form W-2 as follows:

Box 3 (social security wages) $48,000

Box 4 (social security tax withheld) $1,984

Box 5 (Medicare wages and tips) $48,000

Box 6 (Medicare taxes withheld) $696

2020 Form W-2c reporting in 2021

Deferred 2020 social security taxes withheld in 2021 should be reported on a Form W-2c, Corrected Wage and Tax Statement for 2020 and not on Form W-2 for 2021. The form should show “2020” in box c for the tax year, social security tax withheld in 2020 in box 4 under “previously reported” and the total of 2020 social security tax withheld in 2020 and 2021 in box 4 under “correct information.”

Example cont’d: Supreme withholds the deferred 2020 social security taxes from Leonardo’s paychecks from wages paid during the first four months of 2021. Total 2020 social security taxes withheld in 2021 equal $992 ($124 × 8 pay periods). At the same time, Supreme withholds 2021 social security taxes from Leonardo’s pay during the same time frame.

Supreme will issue Form W-2c showing 2020 in box c, $1,984 in box 4 (social security tax previously reported) and $2,976 ($1,984 + $992) in box 4 (social security tax corrected information).

Form W-2c should be filed as soon as possible after deferred tax withholding is finished in 2021 per form instructions. This means forms are likely to be issued no earlier than May 2021. Procedures for deferred withholding of social security equivalent tax on Tier 1 railroad retirement pay are similar (see the instructions).

Note: Additional or different steps may be needed for different situations. For example, additional steps may be necessary if an employee leaves the company before the employer can fully withhold the deferred tax in 2021 and the employer pays the deferred taxes on behalf of the employee.

Employees may not have to take any further action based on Form W-2c

Employees who had only one employer during 2020 and who already filed a 2020 tax return do not have to take any further action when they receive Form W-2c with a correction to box 4 because of the employee payroll tax deferral.

Employees who have multiple employers should use the corrected information on Form W-2c to see if they have paid in excess social security tax for 2020. The maximum social security tax for 2020 is $8,537.40. If the total social security tax paid in for 2020 is more than that amount, the employee should file an original or amended return for 2020 to claim a credit for the excess.

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