2020 W2 Updates: Employee Social Security Deferment and FFCRA Wage Reporting
When it sounds too good to be true, that is most likely the case. Beginning September 1, 2020, willing employers were able to defer withholding the employees’ portion of Social Security tax in an attempt to keep more money in employees’ pockets during the pandemic. Social Security tax could be deferred from employees’ checks paid during September 1, 2020 to December 31, 2020, with the intention of collecting that deferred tax from employees’ checks from January 1, 2021 to April 30, 2021. From an accountant’s standpoint, this sounds like a paperwork and tracking nightmare, along with hesitation on the client’s standpoint – who knows if those employees will still be around come 2021 to recoup that tax?
No one likes a bad honeymoon – the IRS published on October 29, 2020 how the recouped Social Security tax should be reported once it is collected during January 1, 2021 and April 30, 2021, which is filing a 2020 W2c for any affected employee. Guidelines state that the 2020 W2 should have all wages reported as paid, but box 4 housing the Social Security tax withheld should only show the tax that was truly collected in 2020, which makes sense and would be what software should populate for reporting purposes. The fun part is that as soon as possible in 2021, when the tax has been recouped by the employees, a form W2c needs to be filed to report the 2020 tax collected in 2021.
Luckily, one of the more prominent issues with these guidelines has been averted, since there is no reason to wait for the W2c or amended Form 1040 after it has been filed if the employees taxable wages do not exceed the $137,700 Social Security wage limit. If an employee works two jobs and is over the $137,700 limit, they will want to wait for the W2c or amend the 1040 after filing to get any excess tax paid in refunded. It is up to the accountant’s and employers to make sure that employees are aware of why they are getting a W2c and what they should do with it after receiving.
The other prominent issue would be, at this point, the employer is responsible for any portion of Social Security tax not recouped from the employee if the employee terminates employment prior to the employer collecting the tax. There has not been further guidance on this issue, and Ketel Thorstenson, LLP will continue to watch and report any changing guidelines as they are issued. Please follow us on our website for trending and ongoing issues as well as the latest changes in guidelines.
In addition to Social Security Deferment, were FFCRA COVID wages paid to employees in 2020? If so, the detail of those wages is required to be reported in Box 14 of the W2 for 2020. The IRS is asking for the following: if the wages were “Sick leave wages subject to the $511 per day limit,” “Sick leave wages subject to the $200 per day limit,” or “Emergency family leave wages,” along with the dollar amount that was paid under those categories. This will be an item that will most likely have to be manually input on the W2, unless the software companies get an update pushed out to automatically do this, along with the wages items being setup properly to pull on the form when they do. The hardest part about getting this information on the form is that the IRS is asking for a similar description to the ones listed above to be listed in the box, but there is not room for that much language in that area. Suggestions would be to put “Sick $511,” “Sick $200,” or “QFLW” to get the language to fit on the form.