Upcoming Deadline: First Installment of Deferred Employment Taxes due December 31, 2021
By Blake Sagar, CPA
Did you or your business take advantage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provision that allowed for the deferral of the employer’s share of the Social Security tax in 2020? If so, the first installment is due December 31, 2021.
This deferral was granted to help those who needed a temporary financial boost and was viewed by many as an interest free loan. While there were other provisions of the CARES Act that were more generous to employers during the pandemic, these deferrals were always intended to be repaid. The CARES Act allowed the employer’s share of Social Security tax that would otherwise have been due between March 27, 2020 and December 31, 2020 to be deferred. 50% of the amount deferred is required to be paid by December 31, 2021, and the remaining 50% is required to be paid by December 31, 2022. For the first installment, payments made by January 3, 2022, will be considered timely to allow for the New Year’s Day holiday.
Failure to timely remit the first installment of any deferred amounts will cause you or your business to no longer be eligible for the deferral of such taxes under this provision. This could result in being assessed a failure to deposit penalty equal to as much as 15% of the total employer’s share of Social Security tax that was originally deferred. Therefore, it is extremely important if you have deferred the payment of such taxes that you remit 50% of the deferred amounts by December 31, 2021.
Employers and self-employed individuals can make their deferral payments through the Electronic Federal Tax Payment System (EFTPS) by credit or debit card or by mailing a check. These payments are required to be made separately from other tax payments to ensure proper application to the deferred payroll tax balance. The IRS system is not able to recognize the payment if it is made with other tax payments. When remitting any such payment, be sure to designate the payment as “deferred Social Security tax” whether using the EFTPS or paying by check.
For self-employed individuals and household employers that took advantage of this program, the IRS sent out informational-only CP256V notices through the months of October and November 2021. This notice is just to remind those individuals that the first installment (50% of the amount deferred) is due December 31, 2021, and the remainder by December 31, 2022.
If you have any questions regarding the repayment of any amounts deferred under this CARES Act provision, please contact your tax advisor.
Click Here – for IRS guidance on “How self-employed individuals and household employers repay deferred Social Security tax”
Click Here – for IRS guidance on “What employers need to know about repayment of deferred payroll taxes”