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How to Repay Deferred Payroll Taxes

To give businesses a needed temporary financial boost, the Coronavirus, Aid, Relief and Economic Security (CARES) Act, signed by the President in March 2020, allowed employers (ER) to defer payment of the employer’s (ER) share of Social Security tax. In addition, IRS Notice 2020-65, issued in August 2020, allowed employers (ER) to defer withholding and payment of the employee’s (EE) Social Security taxes on certain wages paid in calendar year 2020. Employers (ER) must pay back these deferred taxes by their applicable dates.

The employee (EE) deferral applied to people with less than $4,000 in wages every two weeks, or an equivalent amount for other pay periods. It was optional for most employers (ER), but it was mandatory for federal employees (EE) and military service members.

In a previous blog, AAFCPAs outlined guidance from the IRS on which employees (EE) were eligible to defer payroll taxes, and key considerations for employees and employers.

Repayment of the employee’s (EE) portion of the deferral started January 1, 2021 and will continue through December 31, 2021. Payments made by January 3, 2022, will be timely because December 31, 2021, is a holiday. The employer (ER) should send repayments to the IRS as they collect them. If the employer (ER) does not repay the deferred portion on time, penalties and interest will apply to any unpaid balance.

Employees (EE) should see their deferred taxes in the withholdings from their pay. They can check with their organization’s payroll office for details on the collection schedule.

How to Repay the Employer’s (ER) Share of Deferred Taxes

Employers (ER) may make the deferral payments through the Electronic Federal Tax Payment System (EFTPS) or by credit or debit card, money order or with a check. These payments must be separate from other tax payments to ensure they are applied to the deferred payroll tax balance. The IRS systems won’t recognize the payment if it is combined with other tax payments or sent as a deposit.

EFTPS will soon have a new option to select deferral payment. The employer (ER) selects deferral payment and then changes the date to the applicable tax period for the payment. Employers (ER) can visit EFTPS.gov, or call 800-555-4477 or 800-733-4829 for details.

As a reminder, if the employee (EE) no longer works for the organization, the employer (ER) is responsible for repayment of the entire deferred amount. The employer (ER) must collect the employee’s (EE) portion using their own recovery methods.

As always, AAFCPAs will continue to monitor COVID-19 related developments and keep you informed as significant changes occur or provisions become clarified. If you have questions, please contact Brittany Besler, MBA, CPA, Esq. at 774.512.9001, bbesler@nullaafcpa.com; or your AAFCPAs Partner.