The Coronavirus, Aid, Relief and Economic Security Act (CARES Act) allowed employers to defer the deposit and payment of the employer’s share of Social Security taxes from March 27, 2020 through December 31, 2020. This was done to provide a much-needed financial boost for Americans during the height of the coronavirus pandemic.
These 2020 deferred deposits of the employer’s share of Social Security tax must now be deposited by the following dates to be treated as timely repaid:
- On December 31, 2021, 50 percent of the eligible deferred amount; and
- On December 31, 2022, the remaining amount.
The IRS is currently issuing reminder notices, Notice CP 256V, to employers that the first repayment due date is fast approaching. This is a courtesy notice for information purposes only and a response to the notice itself isn’t required. Although a response to the notice isn’t required, employers should make the first required repayment on or before December 31, 2021 as explained below.
How to Repay Deferred Taxes
Employers can 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 that they are applied to the deferred payroll tax balance. IRS payment tracking systems won’t recognize the payment if it is included with other tax payments or sent as a deposit for the current quarter.
EFTPS will soon have a new option to select deferral payment. The employer selects deferral payment and then changes the date to the applicable tax period for the payment. Employers can visit EFTPS.gov or call 800-555-4477 or 800-733-4829 for details.
Penalties for Late Repayments
The penalty for missing either of the required repayment dates can be quite high. In an internal memorandum from IRS Counsel issued to its management, IRS plans to assess the failure-to-deposit penalty on the entire deferred amount if either repayment date is not met timely. Therefore, the failure-to-deposit penalty can be as high as 15% of the entire deferred amount if either payment is more than 15 days late.
For more information regarding deferred Social Security taxes and for assistance calculating your repayment amounts, please contact your Bennett Thrasher Tax advisor by calling 770.396.2200.