Advising your clients on repaying deferred payroll taxes

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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, 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.

2 responses to “Advising your clients on repaying deferred payroll taxes”

  1. Help! re: Proseries federal 1040; the program is using an incorrect amount to calculate 2021 quarterly estimated tax vouchers & instructions. For ES based on “100% of 2020 tax” (shown near the top of the ES tax calculation worksheet) re: self-employed clients, the program is using 2020 tax minus the 2020 SE tax eligible for deferral, thus many of my clients will be underpaid for 2021 if basing their estimates on 100% of 2020 tax (which most do). I can’t find anyplace that says they’ll have a special tax break next year re: 2021 SE tax. AND, EXTRA-IMPORTANTLY: The instructions in the client letters should at least say something to the effect of “Deferred SE tax owed for 2020 will be due as follows: due 12/31/21… $XXX and due 12/31/22… $XXX. Instructions for paying deferred amounts have not been finalized, but taxpayers may sign up to make electronic payments through the EFTPS system.” Keeping in mind that most of my self-employed clients aren’t in EFTPS and usually pay by check and printed vouchers.