IRS Explains Penalties for Late Payment of Deferred Employment Taxes

calendar iconNovember 3, 2021

The CARES Act allowed employers to defer the payment of the employer’s share of Social Security taxes incurred from March 27, 2020, through December 31, 2021. Employers that chose to defer the payments must pay the amount due in two equal installments on December 31, 2021, and December 31, 2022.

The IRS recently announced that failure to pay any portion of either of these amounts when due will result in a penalty. This penalty is 10% of the entire deferred amount, increasing to 15% if the IRS issues a notice demanding payment and payment is not made within 10 days.

For example, an employer who deferred $50,000 of Social Security tax payments in 2020, must pay $25,000 of these taxes on each installment due date. If the employer only pays $5,000 by the due date of the first installment, then pays the remainder in February 2022 after getting an IRS notice of demand for payment, the employer will be charged a penalty for this late payment equaling 10% of the entire $50,000 or $5,000. The penalty increases to 15%, or $7,500, if the remaining amount is not paid within 10 days of the IRS issuing a notice demanding payment.

While the specific due dates provide cash-basis taxpayers with the opportunity to pay amounts due in 2021, 2022, or 2023, failing to pay amounts before the due dates will result in significant penalties. Because the penalty is on the entire amount deferred and not just on the installment amount due, employers will want to insure that the entire required payment for both installment due dates is not delayed.

If you have questions about paying deferred Social Security taxes or other employment tax issues, speak to your Cherry Bekaert advisor or the Firm’s tax professionals.