IRS’ latest update on deferred taxes: Keys to correct repayment

The IRS wants to make sure employers accurately repay any Social Security tax they may have deferred as part of COVID-19 relief during 2020.

In its most recent Payroll Industry Call, the agency discussed its efforts to resolve persistent issues with ensuring deferred Social Security tax payments are applied to the correct tax liability. Problems have arisen with both the employer’s portion of the tax and the employee’s portion.

Here’s the key info your Payroll and Finance folks need to know to repay the IRS correctly. That way, you’ll avoid any penalties or interest on late payments.

Helpful hints & changes for deferred taxes

Some employers are paying deferred taxes during the current quarter. But they’re not selecting the actual calendar quarter in 2020 to which the payment applies.

When repaying the IRS, employers should make a separate deposit to the agency. Employers must specifically designate the payment to go toward the quarter where the employer deferred the tax.

Currently, employers that use the Electronic Federal Tax Payment System (EFTPS) must select Form 941 from the options. Then, select the appropriate calendar quarter and the option for payment due on an IRS notice.

An EFTPS update, scheduled for March 19, 2021, simplifies this process by giving employers the specific option to select a deferral payment and the date to which the payment applies. It’ll be available for both the employer’s portion and the employee’s portion.

Reminder: 50% of any employer Social Security tax deferred is due on Dec. 31, 2021. The remaining half will be due on Dec. 31, 2022. For the employee portion, any amount deferred is due by Dec. 31, 2021.

Because Dec. 31 is a holiday, payments received by Jan. 3, 2022, will still be considered timely.

Also remember that employers must still collect and repay any deferred Social Security tax for terminated employees.