To conserve precious cash at the onset of the COVID pandemic, many businesses leveraged section 2302 of the CARES Act to defer the employer portion of Social Security taxes (6.2%) during 2020. The relief was helpful, but now taxes are due: The IRS expects you to pay 50% of the deferred amount by year-end 2021.
When is the due date?
Because December 31, 2021, is a holiday, the technical due date is January 3, 2022. Many third-party payroll services are going to insist this is paid much earlier in December. Watch for notes from your payroll platform.
What if you deferred the employee portion of Social Security tax?
We did not recommend clients defer the employee portion of Social Security tax during the last four months of 2020. However, some companies may have done so. If that’s the case for you, repayment should already be happening, via pro-rata deductions, from each paycheck. This repayment must be complete by the end of 2021.
Helpful tips to keep in mind
- Forgetfulness penalties will be significant: Penalties and interest will apply to the entire amount deferred, not just the amount that was paid late.
- Talk to your tax CPA! It might make sense to pay this on January 3, 2022, and get the deduction in 2022. Conversely, it may be smart to pay it much sooner.
- If you switched, or plan to change, your payroll platform:
- The new team will probably not pick up this liability, so talk this through with them or pay it before you switch.
- Conversely, if you paid the deferred tax liability already and haven’t told your current payroll provider you did so, tell them now so that they don’t pay it again!
- The IRS has been unclear about exactly what “50%” means. There’s discussion about paying each quarter’s deferral separately, but no concrete instructions have appeared. Our advice, as of now, is to keep it simple: Pay at least 50% of the total 2020 employer tax deferred.
For questions or assistance, contact our experts.
