Employers: Time to start repaying deferred Social Security wage taxes
By Jay A. Goldman
As part of the federal COVID-19 relief measures, businesses were allowed to defer paying the employer share of Social Security taxes on employee wages between March and December 2020.
The deferral – done to let businesses keep more cash on hand – specified that the first half of the taxes due had to be paid by the end of 2021 and the remainder by the end of 2022.
In a recent IRS announcement, the IRS confirmed that since December 31, 2021 is a federal holiday, payments made by January 3, 2022 will be considered timely paid. This presents an interesting tax planning opportunity for taxpayers.
Tax planning and repayment
If your business runs on a calendar year, then waiting until the Jan. 3 repayment deadline means you won’t be able to take your Social Security tax deduction in 2021 – you’ll have to take it on your 2022 taxes.
Taking the deduction on your 2022 tax may be a benefit, however. Should pending federal legislation pass, the tax rate may increase next year, meaning the deduction value could be greater.
How to repay
The IRS requires the repayment in separate payments corresponding to the deferred quarter instead of a lump sum. That means you’ll pay half of the amount owed for a particular quarter by Jan. 3 and the other half by the end of the year (or perhaps early 2023, depending on IRS guidance).
Failure to repay the required amount may result in interest and penalties applied to the entire deferral. Businesses can repay the amounts in the usual ways, using EFTPS, credit card, debit card, check, or money order.
Depending on your situation, it may make sense to wait until early January to make your first repayment and then apply the tax deduction to your 2022 taxes. As always, you should check with your tax advisor.
The Boyer & Ritter team is ready to help your business with any questions either about this issue or anything involving the various federal COVID-19 relief programs to help you maximize the benefits.