For example, if corporate income tax rates are higher in 2022 than in 2021, a corporate employer with a calendar-year tax year might benefit from paying its first installment of deferred employment tax on January 3, 2022, rather than in 2021.
Thus, an employer may choose to delay its payments until January 3, 2022, and January 3, 2023, if it would benefit from doing so. Employers may generally deduct employment taxes in the tax year they are paid. The extension of the deadlines under IRC Section 7503 gives employers income-tax-planning opportunities.
IRC 6651 FULL
Most employers chose to defer tax payments in accordance with section 2302 of the CARES Act and thus are potentially liable for IRC Section 6656 penalties on the full amount of tax deferred if they fail to pay any portion when due. The IRS gave two examples showing that the penalty would apply to the entire amount deferred whether the late payment was for the first installment or the second installment. The penalty does not apply: (1) if failure is due to reasonable cause and not willful neglect (2) to certain first-time depositors and (3) to the extent that a failure to deposit any or all of the tax was due to the taxpayer anticipating refundable credits allowed under COVID-relief provisions.Īs explained in the Form 941 instructions and FAQs posted on the IRS website, the deferred tax may be repaid using the Electronic Federal Tax Payment System (EFTPS) or by mailing in the payment with a 2020 Form 941-V payment voucher. Under IRC Section 6656, the penalty is 10% of the underpayment if the failure is more than 15 days and 15% if the tax is not paid within 10 days of the first notice sent to the taxpayer demanding payment. The portion of the employer's and the employee's representative share of Tier 1 Railroad Retirement Tax Act (RRTA) tax under IRC Sections 3211(a) and 3221(a), which corresponds to the 6.2% Social Security tax rate due.The employer's share of Old-Age, Survivors, and Disability Insurance Tax (Social Security) under IRC Section 3111(a), which is 6.2% of wages up to the wage base ($137,700 in 2020).All employers may avail themselves of the payroll tax deposit deferral. The CARES Act treats these amounts as timely paid if 50% of the deferred amount is paid by December 31, 2021, and the remainder by December 31, 2022.īecause these dates fall on the weekend, the Chief Counsel memo confirms that the deadlines are actually January 3, 2022, and January 3, 2023, under the weekend/holiday rule of IRC Section 7503. The CARES Act delays the timing of required federal employment tax deposits for certain employer payroll taxes and self-employment taxes incurred from Ma(the date of enactment) through Decem(see Tax Alert 2020-1974). In a memo from the Chief Counsel office ( PTMA-2021-07), the IRS determined that a failure to deposit any portion of the federal employment taxes deferred by Section 2302 of the Coronavirus Aid, Relief and Economic Security Act (CARES Act) by the applicable installment due date will result in a penalty under IRC Section 6656 that runs from the original due date and applies to the entire deferred amount. O, title IV, Sec.IRS says employers that fail to timely deposit any portion of deferred employment taxes under CARES Act will owe penalty on entire amount
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