Payroll tax deferral deposits due by Jan. 3, 2022

This alert was updated to clarify that because Dec. 31, 2021, is a holiday, the IRS confirmed employers have until Monday, Jan. 3, 2022, to remit at least 50% of their deferred payroll taxes as discussed below.

This alert is a reminder that taxpayers who deferred the employer’s share of payroll tax deposits under the Coronavirus Aid, Relief, and Economic Security (CARES) Act must deposit at least 50% of the deferred amount by Jan. 3, 2022.

The CARES Act allowed employers to defer deposit and payment of the employer’s portion of Social Security taxes and self-employed individuals to defer their equivalent portions of self-employment taxes otherwise due between March 27, 2020, and Dec. 31, 2020. Deferred deposits must be made by the following dates to be treated as timely (to avoid penalties and interest charges):

• 50% of deferred amounts due Jan. 3, 2022
• Balance of deferred amounts due Dec. 31, 2022

While the CARES Act requires any taxpayers who utilized the deferral to deposit the first 50% (or more) of the amount deferred by Dec. 31, 2021, this date falls on a holiday. As such, the IRS confirmed payments made by Jan. 3, 2022, will be considered timely.

The IRS recently announced in a memo from the Chief Counsel’s office that a failure to deposit any portion of the deferred taxes by the applicable due date would result in a penalty for failure to deposit taxes on the entire deferred amount going back to the original due date. To avoid costly penalties, employers and self-employed individuals with deferred payroll deposits or payments must pay a minimum of 50% no later than Jan. 3, 2022.

Per Answer No. 29 in the IRS FAQ on deferral of employment tax deposits and payments through Dec. 31, 2020, amounts can be paid via the Electronic Federal Tax Payment System (EFTPS), credit or debit card, or by check or money order. If using EFTPS, an employer filing Form 941 should select the appropriate employment tax return they file and the calendar quarter to which the payment relates (or the 2020 tax year if they file annual returns).

Further, IRS COVID Tax Tip 2021-32 advises that “[t]hese payments must be separate from other tax payments to ensure they applied to the deferred payroll tax balance. IRS systems won't recognize the payment if it is with other tax payments or sent as a deposit.”

Finally, Answer No. 20 from the FAQ indicates that the IRS intends to send reminder notices to employers before the deposit due dates; however, given the IRS’ resource constraints, it is unlikely that these notices have reached all taxpayers who utilized the deferral.

We encourage you to connect with your Baker Tilly advisor regarding how the above may affect your tax situation.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.