Part 1 discussed the deferral of employment tax deposits and payments for the year 2020 (Deferral of employment tax deposits and payments through December 31, 2020 | Internal Revenue Service (irs.gov)). The Coronavirus, Aid, Relief and Economic Security Act (CARES Act) allows the employer to defer the employer’s share of the social security tax for the first quarter of 2020. What would have been the full amount of the employment tax liability due for that quarter, including the liability for which deposits would have been due on or after March 27, 2020, did not have to be paid. However, this presents a bookkeeping problem. There is now a discrepancy for the first quarter between the amount of the liability reported and the amount of deposits and payments for that liability. The Internal Revenue Service (IRS) will send a notice to these employers identifying the difference as an unresolved amount. This notice will also include additional information instructing the employer how to inform the IRS that it had deferred payment or deposit of the employer’s portion of the social security tax due after March 27, 2020, for the first quarter of that year under section 2302 of the CARES Act.
This deferral applies to all businesses including those that deposit employment taxes annually. As long as the deposit amount relates to the tax imposed on wages paid on or after December 31, 2020, during the payroll tax deferral period, then the employer may defer this amount. If an employer had already deposited the amount with the IRS for employment taxes, he or she may receive a refund of Social Security tax already deposited. This is a result of paying the amount due but then receiving tax credits, such as the Research Payroll Tax Credit, the Families First Coronavirus Response Act (FFCRA) paid leave credits, and the employee retention credit (Employer Tax Credits | Internal Revenue Service (irs.gov)). Since this can be complicated in reporting, it is best to consult a tax professional for help with payroll taxes.
Another situation that may require help with employment taxes is the forgiving of a loan that an employer received from the Small Business Administration for payroll. The Paycheck Protection Program (PPP) provide monies for wages for employees so that the employer could afford to keep employees rather than laying them off. At first, these payroll taxes could not be deferred; however, the CARES Act was amended so that employers could defer the payment and deposit of the employer’s share of Social Security tax after the employer received notice that the PPP loan was forgiven by the lender.
In anticipation of the FFCRA paid leave credits and employee retention credits, an employer was permitted to defer payment of employee taxes, including taxes withheld from employees. However, employers who reduced the amount of their deposits in excess of the deferral, the allowable FFCRA paid leave credits and the employee retention credits may be liable for a failure to deposit penalty for the excess reduction. This may trigger a Trust Fund Recovery Penalty (TFRP). Since this is a serious matter, it is best to have a tax professional handle it. Call Bullseye Tax Relief now before the matter gets worse!