Employers who made the election to defer 2020 social security tax payments per provided CARES Act relief issued in March of 2020 are required to remit the first repayment by December 31, 2021. The second portion can continue deferral until December 31, 2022. To avoid penalties and interest, at least half of the total deferred payroll taxes need to be remitted by December 31, 2021.
A failure-to-pay and failure-to-deposit penalties may come into play for any untimely or inadequate payments. Per released IRS guidance, penalties are due on the full amount of deferred taxes if the first or second repayment are not remitted by deadlines and payments are less than the required scheduled amount. The first payment is due by December 31, 2021, and must equal at least 50% of total taxes deferred. The second payment is due by December 31, 2022 and must close the remainder of the deferred taxes balance.
For example, if total deferred taxes are $100,000, then a 2% failure-to-deposit penalty will be due on $100,000 if 50% payment is not remitted and payment is more than one day past December 31, 2021. Failure-to-deposit penalties can climb up to 10% if payment is 15 or more days delinquent. The same principle applies for next year’s final repayment. This penalty example does not include any failure-to-pay assessments or late payment interest that could also be assessed by the IRS.
Companies can make payments electronically via credit card, direct debit or by check/money order. If the company files a quarterly Form 941, the payment should be applied to related quarter. This means multiple separate payments may need remitted if the deferred taxes cover different calendar periods. If an annual payroll return is filed (Form 943 or 944) then payments can be applied to the year 2020.