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Are you ready for the first installment of repayment of FICA and SE tax deferral?

Overview: Deferral of employer’s portion of Social Security taxes under the CARES Act

The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 allowed employers to defer payment of the employer’s portion of Social Security tax for wages paid between March 27, 2020 and December 31, 2020.

There are specific dates on which the deferred amounts must be made. If not paid timely, taxpayers can be subject to penalty for late deposit of payroll liabilities.

The repayment of the first 50% of the deferral is required by December 31, 2021. The remaining 50% is due by December 31, 2022.

The repayment can be made via Electronic Federal Tax Payment System (EFTPS), by credit or debit card, or by check or money order. EFTPS is the preferred method. Taxpayers must register to use EFTPS. If a taxpayer is not registered and wants to use EFTPS they should begin the registration process today.

If the taxpayer deferred payment for multiple quarters each quarter must be repaid separately.

Potential penalties if deferral is not timely repaid
If the deferral is not repaid timely, the taxpayer is subject to penalty and interest based on the original liability date for the amounts deferred. Therefore, if the first 50% is not made by December 31, 2021, a 10% penalty for late payment of payroll liabilities, may be assessed on the entire deferral. Likewise, if the second 50% is not made by December 31, 2022 another 10% penalty could be assessed.

Similar rule for a portion of Self-Employment Tax for Self-Employed persons

Self-employed persons were also allowed to defer 50% the Social Security portion of Self-Employment tax. As with the employer deferral, self-employed persons are required to repay 50% of the deferral by December 31, 2021, and the remaining 50% by December 31, 2022. Self-employed persons are not subject to the 10% penalty for late payment of payroll liabilities. They can be subject to underpayment penalties if repayment of the deferral is not made by the applicable date. Self-employed person should make these payments through estimated taxes or withholding

Summary and next steps
As the first deadline (12/31/21) approaches, employers and self-employed persons should ensure they have made the required payments by the applicable dates to make certain the cost of the Social Security tax deferral doesn’t exceed the benefit originally received from the deferral.

Article prepared by Chuck Bezler, Senior Manager. For questions contact us at info@herbein.com