Parts 1 and 2 of previous blogs on this topic discussed the deferral of employment tax deposits and payments for the year 2020 and the effects that this deferral may have on the employer (Deferral of employment tax deposits and payments through December 31, 2020 | Internal Revenue Service (irs.gov)). Part 3 will continue this discussion. Determining the amounts for credits and deferral can be tricky. It is best to consult a tax professional for help with employment taxes as they relate to COVID and The Coronavirus, Aid, Relief and Economic Security Act (CARES Act).
Employers may defer the payment and deposit of their share of Social Security tax prior to determining whether they are entitled to employment retention credits, the Families First Coronavirus Response Act (FFCRA) paid leave credits, the Research Payroll Tax Credit, the advance payments of these credits, the amount of any refunds with respect to these credits and the amount already deposited that may be retained because of those credits (Employer Tax Credits | Internal Revenue Service (irs.gov)). These credits may actually trigger an overpayment on the employer’s part for which a refund must be requested. However, if a payment is due and the amounts are not paid, the employer’s deferred deposits will lose their deferred status and may be subject to failure to deposit penalties or Trust Fund Recovery Penalty (TFRP). The employer may also be subject to pay penalties accruing from the deferred due date for payment.
For deferred deposits to be treated as timely and therefore avoid a failure to deposit penalty, the employer’s share of Social Security tax must be deposited by the following dates which are referred to as the “applicable dates”:
- On December 31, 2021: 50 percent of the eligible deferred amount
- On December 31, 2022: the remaining amount
Any amounts paid prior to the first date will be first applied to that date to reduce the employer’s liability. Any remaining amounts then will be applied to the amounts due by the second date.
The Internal Revenue Service (IRS) intends to send reminder notices to employers before each applicable due date. That means for employers who pay four quarterly payment per year they will receive four reminder notices even though the due dates for all four quarters is the same date (see dates above).
Self-employed individuals may defer the payment of 50 percent of the Social Security tax imposed. The amount due is determined after income and deductions are calculated. There will be no penalty for failure to pay estimated tax payments by deferring the 50 percent of the Social Security tax. The applicable dates listed above also apply for self-employed individuals. A household employer that files a Schedule H with his or her individual income tax return may defer the employer’s part of the Social Security tax on the wages paid during the payroll tax deferral period. Not subject to the deposit requirements, these taxes are paid annually and are treated as a tax to which the estimated tax payment penalty provisions apply.
As you can see, deferring Social Security taxes can be very complicated. It is recommended that employers seek help with payroll taxes from a knowledgeable and experienced tax professional, such as those found at Bullseye Tax Relief. Business tax help is just a phone call away! or click here to contact us.