Advising your clients on repaying deferred payroll taxes

To give people a needed temporary financial boost, the Coronavirus, Aid, Relief and Economic Security Act allowed employers to defer payment of the employer’s share of Social Security tax. IRS Notice 2020-65 allowed employers to defer withholding and payment of the employee’s Social Security taxes on certain wages paid in calendar year 2020. Employers must pay back these deferred taxes by their applicable dates.

The employee 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, but was mandatory for federal employees and military service members.

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

Employees 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 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 check. These payments must be separate from other tax payments to ensure they are applied to the deferred payroll tax balance. IRS systems won’t recognize the payment if it is with other tax payments or sent as a deposit.

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.

If the employee no longer works for the organization, the employer is responsible for repaying the entire deferred amount. The employer must collect the employee’s portion using their own recovery methods.

Visit Intuit’s COVID-19 Resource Center for other timely updates on tax law and news.