Back in the darkest days of the COVID-19 pandemic when companies and workers were struggling due to health-related shutdowns, they were given a bit of a tax reprieve.
The Trump Administration on Aug. 8, 2020, issued executive memo that called for the deferral of the payroll tax portion of the Federal Insurance Contributions Act (FICA) tax that goes toward Social Security. The White House argued that the move would put more money into workers' hands, give employers some financial breathing room, and keep the economy moving during the initial coronavirus closures.
There was a lot of political consternation about the move, with questions about its legality and the damage it could do to the Social Security federal retirement system. The U.S. Treasury Department issued a clarification that, well, didn't clear things up much. But the executive decision stood.
The only out was that the deferral of the tax was optional (except for federal workers). Many private sector companies decided it wasn't worth the fiscal and bookkeeping hassle of not collecting the FICA amounts.
Some employers, however, did make the change. And since the choice was a deferral, not a waiver of their 6.2 percent portion of the payroll tax, they had to pay it back. Eventually.
Paying the delayed tax over two years: In most cases, half of the deferred business portion of the FICA Social Security tax was due at the end of 2021 (technically in early January of this year, due to the date falling on a federal holiday followed by a weekend).
Now the remainder of the deferred tax amounts is due by the rapidly approaching end of December 2022. Or, as happened with the first payment, in early January of next year, officially the new year's first business day on Jan. 3, 2023.
The Internal Revenue Service sent notices this fall about the year-end deadline to affected employers, including self-employed individuals who opted to defer payment of the tax amount.
But if you didn't get the alert — or ignored it or lost it — here's another reminder.
How to repay the deferred taxes: Employers and individuals have several ways they can make this deferred payroll tax payment.
You can send Uncle Sam the money through the usual electronic methods. That's via the Electronic Federal Tax Payment System (EFTPS), by Direct Pay, using a debit card, credit card or digital wallet, or by sending an old-school check or money order to the IRS.
Regardless of which payment option you choose, it must be made separately from other tax payments and deposits. This will ensure that the IRS credits it properly.
You definitely want that proper IRS notation to happen, because that will help you avoid follow-up bills or notices from the agency.
The IRS also offers the following tips on the payment options.
EFTPS: The Electronic Federal Tax Payment System is a free service offered by the Treasury Department that's available to both business and individual taxpayers. If you have an account and choose to pay this way, on the Tax Type Selection screen, choose "Deferred Social Security Tax." Then change the date to the applicable tax period, which is the calendar quarter in 2020 for which tax was deferred. You can find more on the process at EFTPS.gov, or you can call toll-free (800) 555-4477 or (800) 733-4829 for details.
Direct Pay: With the option, your due amount comes directly from the checking or savings account you designate. This service is available free only on Direct Pay With Bank Account. Select the "Balance Due" reason for payment, and apply the payment to the 2020 tax year where the payment was deferred. Direct Pay is not available to pay employment taxes.
Debit card, credit card or digital wallet: If you prefer to pay with a debit card, credit card or digital wallet, select "installment agreement." Again, apply the payment to the 2020 tax year where the payment was deferred. Note that the IRS does not charge a fee for this service, but the authorized third-party payment processors do. The IRS' online payments web page has details on the process and costs.
Check or money order: Yes, this still is a preferred payment method for many. If that's you (and me, too, when it comes to donating to charity; I like the canceled check record, even though my bank offers it as a digital copy) then make your check or money order payable to United States Treasury, not the IRS. You can find more information on where to mail payments in the Instructions for Form 941.
It doesn't matter how you pay this deferred tax amount. Just do so. And get the money in by the Dec. 31 due date.
You also might find these items of interest:
- AMT, payroll, and nanny tax inflation changes for 2023
- Paying self-employment taxes on the revised Schedule SE
- Social Security wage base is $160,200 in 2023, meaning more FICA taxes for higher earners