Employers may face penalties for late payment of deferred payroll taxes due by year’s end

Employers who took advantage of the payroll tax deferral under the Coronavirus Aid, Relief, and Economic Security (CARES) Act may face huge late payment penalties from the Internal Revenue Service (IRS) if they fail to repay at least 50 percent of deferred taxes by December 31, 2021.

In PMTA 2021-07, a memo from the Office of the Chief Counsel of the IRS, the agency states that late payment of the full first installment of the deferred tax due by end of the year would subject the employer to a 10 percent penalty on the total amount due, not just on the first installment, if the failure is more than 15 days. If the IRS demands payment from the employer and the deferred tax is not paid within 10 days, the penalty rate would increase further to 15 percent. 

Similarly, the memo confirms that a 10 percent penalty on the total amount due would also apply if the employer fails to pay the second installment on time. If the IRS demands payment of the balance of the second installment and the employer fails to pay the full amount within 10 days, the penalty rate would also increase to 15 percent. 

Payroll deferral under the CARES Act

Section 2302 of the CARES Act allowed employers to defer the deposit and payment of the employer’s portion of Social Security taxes on wages paid to employees (6.2 percent) from March 27, 2020 through December 31, 2020 to ease the financial burden of businesses affected by the pandemic.

As per IRS Notice 2020-65, the deferral was applied to any employee whose gross earnings are $4,000 or less on a bi-weekly payroll, or an equivalent amount for other pay periods. It was mandatory for federal employees and military service members but optional for most employers. 

Deadline of payment

Deferral payment is considered timely if 50 percent of the deferred amount is paid by December 31, 2021, and the remainder is paid by December 31, 2022. However, PMTA 2021-07 recognizes that these dates fall on a holiday and the weekend, so the actual deadlines are January 3, 2022, and January 3, 2023.

According to the FAQs posted on the IRS website, employers can make deferral payments through the Electronic Federal Tax Payment System (EFTPS) or by credit or debit card, money order, or with a check. These payments must be separate from other tax payments.

Make sure to submit your required payments on time. Call us today at (302) 777-7400 or email [email protected] if you need professional assistance. Our dependable team at Stephano Slack will be glad to assist you. To learn more about our services, visit www.stephanoslack.com/services today.