Marks Paneth | Reminder: half of 2020 deferred FICA and Self-Employment Taxes are due December 31, 2021

In March of 2020, Congress passed the CARES Act which, among other things, allowed employers to defer the payment of their share of Federal Insurance Contributions Act (FICA) taxes for their employees for periods March 27, 2020, through December 31, 2020. The employer FICA tax is a 6.2% payroll tax on the first $137,700 of an employee’s wages paid during the calendar year.

Employers who elected to defer paying their FICA taxes are required to pay half of the deferred amount by January 3, 2022. The remaining half of the deferred tax is due January 3, 2023. (The due dates per the CARES act are December 31, 2021, and 2022, but since both fall on weekends the actual due dates are on the following Mondays.)

Also, self-employed individuals were able to defer payment of one half of their 2020 Self-Employment Tax incurred from March 27 to December 31, 2020. Like the FICA tax, half of the deferred Self-Employment Tax is due January 3, 2022, and the remainder is due January 3, 2023.

Employers who make their own payroll tax deposits will need to properly designate their deferred FICA taxes made via EFTPS, or they can pay the deferred taxes via credit card or check. Employers who deferred the payment of FICA taxes for multiple quarters of 2020 will need to make multiple deposits of deferred taxes by the due dates shown above. For instance, an employer who deferred $10,000, $12,000 and $13,000 in FICA taxes for the second, third and fourth quarters of 2020 will need to make three separate payments of $5,000, $6,000 and $6,500 on or before January 3, 2022, and designate those payments as being made for deferred taxes for the relevant quarters.

Employers who use the services of a payroll service or professional employer organization and who deferred the payment of any of their 2020 FICA taxes should confirm with their payroll provider that the proper amount of deferred taxes will be paid by the due date.

The IRS has stated that failure to timely deposit any deferred FICA tax will result in the imposition of failure to deposit penalties calculated back to the original deposit due date in 2020. The IRS has announced that if any amount of the deferred tax is not timely paid, the entire deferred amount for the quarter will be subject to a 10% failure to deposit penalty, plus applicable interest. Due to the amount of potential penalties, we recommend that the deferred taxes be initiated via EFTPS several days, if not weeks, before the due date.

Also, employers may want to consider accelerating the payment of the remaining deferred FICA taxes to December 31. Paying all the deferred taxes by then will ensure that they are entitled to a federal income tax deduction for them on their 2021 tax return.

Contact:

• James (Jay) M. Brower, Jr., Partner, State and Local Tax Leader | jbrower@markspaneth.com

Compliments of Marks Paneth LLP – a member of the EACCNY.