Employment Taxes Amid COVID – Part 1

It is not necessary to say that this past year has been a particularly trying one. COVID has upended the entire world, especially the business one. Businesses long established as the foundation of the American economy have found themselves to being greatly diminished or have disappeared forever, such as Sears, Fry’s Electronics, and Soup!antation eatery. Likewise, many other small businesses have been forced to permanently close. The Federal and State governments tried to help with tax credits, but sometimes even that did not help. So now the focus is trying to get back to “normal” or to a new version of “normal”. 

COVID changed the way we do business, but like the saying goes: there is no escaping death and taxes. Both Federal and State Taxes (and local taxes) are still due, but perhaps in a diminished form. Congress passed the Coronavirus, Aid, Relief and Economic Security Act (CARES Act) to help with the economic havoc wrought by COVID (Deferral of employment tax deposits and payments through December 31, 2020 | Internal Revenue Service (irs.gov)). With the help of this Act, businesses were able to continue to pay their employees and stay in business. However, this Act also brought a different set of accounting for payroll taxes with it. A tax professional, such as the ones at Bullseye Tax Relief, can help you navigate these uncharted waters.

Normally, businesses deposit employment taxes with the Internal Revenue Service (IRS) quarterly. These employment taxes include federal income tax, social security and Medicare tax, unemployment tax (FUTA) and self-employment tax (SE), if applicable. The CARES Act allowed businesses to defer the deposit and payment of the employer’s portion of the Social Security Taxes. There will be no penalties for not depositing these taxes with the IRS on time. However, this grace period does not last forever. The “payroll tax deferral period” began on March 27, 2020, and ends December 31, 2020. After that time frame, employers must collect and deposit those taxes with the IRS as they had prior to COVID.

Since the payments and the deposits are deferred until the end of December 2020, this applies to the monies collected that relate to the last quarter of 2020. These monies do not have to be deposited with the IRS at this time. Furthermore, employers may also be entitled to tax credits (Employer Tax Credits | Internal Revenue Service (irs.gov)) that can offset these deposit amounts. Refundable tax credits include credits for paid leave under the Families First Coronavirus Response Act (FFCRA) or for qualified wages under the employee retention credit. In addition to the deferral, these credits can reduce the employer’s deposits required for the IRS. Employers DO NOT make a special election to defer payments and deposits of these employment taxes. They should report the deferred taxes on the appropriate line on their employment tax return. Employers needing help with employment taxes should consult a tax professional so that they receive the maximum amount of credit possible.

Employers should also ask for help with payroll taxes since they have been complicated with COVID this past year. Unfortunately, IRS Form 941 (Employer’s Quarterly Federal Tax Return) was not revised until the second quarter of the year. It does not reflect the deferred deposits otherwise due on or after March 27, 2020, for that quarter or the deferred wages paid between March 27, 2020, to March 31, 2020. However, the form has been revised to reflect the employer’s deferral of the employer’s share of the Social Security tax for the second, third and fourth quarters. 

As you can see, COVID has complicated the tax process. Your best option is to seek business tax help to avoid any mistakes that may negatively affect your payment of employment taxes. Call us today!

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