COVID Tax Tip 2021-99, July 12, 2021
The Coronavirus, Aid, Relief and Economic Security Act – CARES Act – allowed employers to defer the deposit and payment of the employer’s share of Social Security taxes and self-employed individuals to defer payment of certain self-employment taxes.
Here are some important dates for people to know:
- The deferral applies to those taxes for the period March 27, 2020 through December 31, 2020.
- Employers must pay 50% of the amount eligible to be deferred by December 31, 2021 and the remaining deferred tax by December 31, 2022.
- If any portion of the employer’s share of Social Security tax is not deposited or paid by the applicable date, penalties and interest will apply.
There are special considerations in repaying the deferred taxes when an employer uses a third party payer that files aggregate Forms 941 and 943 under its own EIN. This includes a non-certified professional employer organization and a third party payer designated as an agent by an employer submitting Form 2678.
Third party payers that reported their clients’ deferred deposit and payment of the employer’s share of Social Security taxes must have attached a Schedule R to their aggregate returns in 2020. They must list all clients who are deferring deposits of the employer’s share of Social Security tax on the Schedule R.
How to make payments for deferred tax reported by third party payer aggregate filers:
Employers should coordinate with their third party payer to pay deferred taxes owed by the December 31, 2021 and December 31, 2022 due dates.
- If an employer used the services of a third party payer to report the deferred deposit and payment of any portion of its share of Social Security taxes during the payroll tax deferral period, the employer is solely liable for payment of the deferred taxes.
- Whenever possible, the employer should provide the deferred tax amount to the third party payer that reported the deferred taxes so that the third party payer can pay the deferred taxes to the IRS by the applicable due date.
- Coordinating with the third party payer helps ensure the deferred tax amount is appropriately applied to the outstanding liability. It also helps ensure that the third party payer can respond to inquiries from the IRS regarding any outstanding liabilities remaining after the due dates.
- The employer should continue coordinating with their third party payer and ensure payments are applied under the correct EIN unless they receive an IRS notice showing an unpaid deferral amount under their EIN. The employer should then follow instructions in that notice for making their deferral payments.