Employer payroll tax deferral was neither a gift nor a forgiving debt. When and how to refund delayed payroll taxes are outlined below.
What you’ll discover:
Is it necessary for me to repay the payroll tax deferment?
When is the due date for delayed employer payroll taxes?
How can companies make IRS payments for delayed payroll taxes?
Would the timing of employer payroll tax payments influence current and future tax filings and deductions?
Consult a tax expert for assistance with your tax situation.
Many legislative and administrative initiatives were made in 2020 to give tax relief to individuals and small business owners who had been impacted by the COVID-19 epidemic. Under the Coronavirus Assistance, Relief, and Economic Security (CARES) Act, one of the options available to businesses was the opportunity for small company owners, including self-employed individuals, to delay some payroll taxes from March 27, 2020 to December 31, 2020. This period is known as the “payroll tax deferral period,” and it provided small company employers with a little more cash to assist fund their operations during the first year of the epidemic.
If you participated in payroll tax deferral, you may be asking how to make payments to the IRS and what the payback deadlines are. Continue reading for solutions to these and other questions.
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Is it necessary for me to repay the payroll tax deferment?
“Yes,” is the quick response. The CARES Act employer payroll tax deferral was not a grant nor a forgivable loan, as some other COVID-19 tax relief for company owners was.
Businesses who choose to delay payment of the 6.2% employer component of FICA taxes payable on an employee’s first $137,700 in salary during the deferral period must eventually pay these taxes to the IRS. The deferral period was created to assist struggling small company owners by delaying – but not completely erasing – a part of their tax liability.
When is the due date for delayed employer payroll taxes?
Small company owners that take advantage of the CARES Act employer payroll tax deferral have some payment flexibility. Half of the deferred taxes must be paid by December 31, 2021, with the remainder payable by December 31, 2022. The IRS has said that it would send notifications to employers before to each appropriate due date.
It should be noted that the employer payroll tax deferral described in this article is distinct from the employee payroll tax deferral implemented by President Trump’s executive order in August 2020. The initial payment date for employee deferrals was April 30, 2021. The Consolidated Appropriations Act (CAA), passed into law on December 27, 2020, extended the deadline for employee-side payroll tax deferrals to December 31, 2021.
How can companies make IRS payments for delayed payroll taxes?
If you choose to delay part or all of the employer component of FICA taxes for earnings during the payroll tax deferral period, you may make payments to the IRS in a variety of ways.
Employers may make payments using the IRS’s preferred method, the Electronic Federal Tax Payment System (EFTPS). Employers who file Form 941 should designate which 2020 calendar quarter the payback pertains to when making EFTPS payments, so that the EFTPS entry appears as a payment due on an IRS notice. When making a payment, employers that submit yearly returns should choose the appropriate return and the 2020 tax year. You may also pay by credit or debit card, or by writing a check or money order to the IRS.
Would the timing of employer payroll tax payments influence current and future tax filings and deductions?
While your delayed employer payroll taxes accumulated in 2020, you may not be allowed to deduct them until they are paid. You might deduct one-half for each tax year, 2021 and 2022, regardless of whether you employ the accrual or cash accounting technique.
But, if your company employs the accrual method, has a fiscal year end of December 31, and decides to pay the deferred taxes by September 15, 2021, you may be eligible to deduct the payment on your 2020 taxes. If your company suffered losses in 2020 and has to make payments by September 15, 2021, this might be an interesting choice. But, for certain companies, using the whole deferral period for cash flow considerations may make more sense.
Consult a tax expert for assistance with your tax situation.
It may be tough to remain on top of small company tax needs, such as federal, state, and local tax filings, optimizing available credits and deductions, and tax deferral options, when you are focused on operating your firm.