The Coronavirus, Aid, Relief and Economic Security Act of 2020 (CARES) gave employers a temporary financial boost. Under the law, employers could defer paying their share of Social Security — but the final payment is due by the end of 2022 to avoid penalty.
The IRS has sent letter 3064C to remind employers of their final balance. Employers who have deferred the employer portion of social security taxes must pay this amount by December 31, 2022—which is extended to January 3, 2023.
Employers may be surprised to learn that a 10% penalty on the entire deferral will be assessed in the case of underpayments and late deposits. According to the IRS, if any portion of taxes deferred under CARES Act Section 2302 is not deposited by the applicable due date, the deferral of the deposit due date is invalidated for all of the employer’s deferred tax rather than just the remaining delinquent portion. A Section 6656 penalty for failure to deposit taxes would then apply to the entire deferred amount.
Example: Suppose an employer deferred a total of $50,000 for the 2020 tax period and pays $25,000 on December 31, 2021, but fails to make any additional deposits or payments by December 31, 2022. In that case, the employer is liable for a penalty on the entire $50,000. These penalties can be substantial and will not be eligible for abatement.
Ways to make your deferral payment
EFTPS is the preferred method of repayment and has a deferral payment option. The employer should select deferral payment and then change the date to the applicable tax period for the payment.
Other Important Information
Remember that these payments must be made separately from other tax payments to ensure they are applied to the deferred payroll tax balance. The IRS system will not recognize a payment sent as part of another transaction or with a deposit.
Learn more about critical components of the complex repayment rules.