The Internal Revenue Service has issued updated guidance reminding employers and self-employed individuals of their obligations under the payroll tax deferral program. With repayment deadlines for deferred taxes now concluded, the IRS notice warns that missed payments could trigger penalties and interest charges, underscoring the importance of timely tax compliance.
The IRS notice emphasizes that all deferred taxes from the 2020 payroll tax deferral program must now be repaid. The deferral, authorized under the CARES Act, allowed certain employers and self-employed individuals to postpone the employer’s share of Social Security taxes and portions of self-employment taxes on wages paid between March 27 and December 31, 2020.
The law required the deferred amount to be settled in two installments:
The IRS intends to enforce these deadlines strictly. Missing an applicable due date converts all deferred deposits into immediately collectible liabilities, with added interest charges and penalties.
Employers were required to track deferrals carefully in their employment tax returns and ensure accuracy in their annual returns. The IRS clarified that repayment must be recorded as employment tax deposits separate from other tax payments, including federal income withholding and Medicare taxes.
The IRS directs taxpayers to use the Electronic Federal Tax Payment System (EFTPS) for most repayments. When using EFTPS, employers must select “Deferred Social Security Tax” and apply it to the same calendar quarter where the wages were initially deferred.
For those unable to access EFTPS, alternative methods include making tax payments by debit card, credit card, money order, or check. The IRS warns that each payment must be coded separately from routine deposits to avoid processing errors.
According to official guidance, the IRS intends to continue issuing notices to businesses and self-employed individuals who appear noncompliant. Certain employers that fail to defer payment properly or misapply the payment-related coding risk penalties under Section 6656 of the Internal Revenue Code.
The payroll tax deferral originated as part of the Coronavirus Aid, Relief, and Economic Security Act, better known as the CARES Act. Passed in March 2020 during the height of pandemic disruptions, the law allowed employers to delay paying their Social Security taxes, while self-employed individuals could postpone half of their self-employment taxes tied to self-employment income. This temporary measure was designed to provide immediate economic security by preserving cash flow when businesses faced unprecedented uncertainty.
The program intersected with other federal tax relief efforts, including the First Coronavirus Response Act and the employee retention credit, which applied to qualified wages. Employers claiming refundable tax credits, such as employee retention and work opportunity tax credits, were required to ensure that the same wages were not counted twice. Federal agencies also guided the handling of payroll taxes, employment tax returns, and calendar quarter reporting to avoid errors.
According to the Government Accountability Office, more than one million taxpayers deferred deposits totaling over $123 billion, highlighting the scale and complexity of these Coronavirus Response Act programs.
Tax professionals say the payroll tax deferral offered short-term relief but created long-term compliance risks. Many businesses that delayed paying the employer’s share of Social Security taxes are now struggling to reconcile deferred deposits with other tax payments, including federal income withholding and Medicare taxes.
Self-employed individuals faced added difficulties in meeting repayment rules. They had to track self-employment income across multiple forms, accurately report deferred amounts of self-employment taxes on annual returns, and align each payment with employment tax deposits for the same calendar quarter in which wages were paid.
“The IRS intends to apply penalties for late tax deposits even if taxpayers misunderstood the rules,” said one tax advisor. The Government Accountability Office noted that employers who claimed refundable tax credits, such as the employee retention credit or the work opportunity tax credit, had to carefully separate the same wages used for credits from those applied to deferred taxes.
The IRS intends to pursue penalties and interest charges against taxpayers who missed the final payment date for payroll tax deferral obligations. Employers and self-employed individuals must confirm that deferred amounts were correctly matched to the same calendar quarter in which wages were paid.
Officials stress that employment tax deposits tied to deferred taxes must be submitted through the Electronic Federal Tax Payment System. Payments by debit card, credit card, check, or money order are accepted, but each must be coded separately to avoid errors.
Failure to defer payment properly can result in significant liabilities, as the entire deferred amount becomes due once an applicable due date is missed. Businesses are urged to review their tax return filings and ensure accurate reporting of payroll taxes and other tax deposits.
Taxpayers seeking guidance on payroll tax deferral repayments can review the IRS resource. What employers need to know about repaying deferred payroll taxes can be found at IRS.gov. The agency provides instructions on handling deferred deposits, using the Electronic Federal Tax Payment System, and ensuring each payment relates to the correct calendar quarter.
For further context on the program’s scope and implementation challenges, the Government Accountability Office has published its report COVID-19: IRS Implemented Tax Relief for Employers Quickly, but Could Strengthen Compliance at GAO.gov. These sources include additional information for employers, self-employed taxpayers, and businesses still reviewing their tax return obligations.
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