Guidance for Repayment of Deferred Payroll/Self-Employment Taxes
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Guidance for Repayment of Deferred Payroll/Self-Employment Taxes

CPAs & Advisors

Tammy Moncrief
Tammy Moncrief CPA Managing Principal CPAs & Advisors

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The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allowed employers and self-employed individuals to defer employer FICA and self-employment tax due during 2020 and pay half of the taxes in December 2021 and the remaining half in December 2022.

Recently, the IRS issued guidance on the penalty for late repayments and how to make the repayments of the deferred employment tax. 

Penalty for late payments

The IRS made clear that any late payment of either installment will subject the entire deferral to a late payment penalty. 

  • Example: An employer defers $50,000 and deposits $25,000 on December 31, 2021, but fails to make the second deposit by December 31, 2022. The employer is liable for a Section 6656 penalty on the entire $50,000.
  • Since the penalty under Section 6656 for failure to timely deposit payroll taxes paid more than 15 days after the due date is 10% of the amount owed, this would result in a 10% penalty of the entire deferral, even though the first installment was timely.

How to make payments

IRS issued guidance on making the deferral payments. 

  • Payment must be made separately and cannot be deposited along with any other tax payment.
  • Employers: EFTPS now has an option to select “deferral payment.” Select the date of the applicable tax period for the payment.
  • Self-employed can pay by EFTPS, credit/debit card or check. Again, this must be a separate payment designated in the memo as “deferred Social Security tax.”
    • If using EFTPS, select 1040 individual income tax and select “deferred social security tax” as the payment type.
    • Those using direct pay should select the reason for payment as “balance due.”
    • Those using a credit/debit card should select “installment agreement.” Apply the payment to the 2020 tax year from which the amount was deferred.

Timely repayment is vital. Please contact your Yeo & Yeo professional if you need assistance with repaying deferred payroll taxes.

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