Self-Employed Must Prepare to Repay 2020 Deferred Social Security Tax by Rachel Kenney Rego, CPA
Self-employed taxpayers who took advantage of COVID relief measures and chose to defer 50 percent of the 12.4 percent Social Security tax on net earnings from self-employment income earned during the period March 27 through Dec. 31, 2020, must prepare to repay half of the deferred amount by the end of this year. Failure to do so will result in penalties and interest charges.
According to the IRS, self-employed individuals have until Dec. 31, 2021, to pay one-half of the deferred amount through the Electronic Federal Tax Payment System (EFTPS) or directly with the IRS via check, money order, or credit or debit card. When using EFTPS, taxpayers should select form “1040 US Individual Income Tax Returns” and “Deferred Social Security Tax” for the type of payment. It is important to remember that the payment be applied to the 2020 tax year, when the deferral occurred. The remaining half of deferred Social Security taxes are not due until Dec. 31, 2022.
Taxpayers who are not able to pay the deferred tax amounts in full by the end of this year should pay whatever they can, as soon as possible, to limit their exposure to penalties and interest charges. They should also work with their accountants to request a payment plan with the IRS that enables them to meet their tax obligations. Similarly, if a taxpayer works with a third-party payroll-services provider, arrangements should be made to ensure proper reporting of deferred deposits and payments appropriately applied to the outstanding tax liability. This coordination can also help to ensure that the third-party payer can respond to IRS inquiries regarding any outstanding liabilities remaining after the due dates.
About the Author: Rachel Kenney Rego, CPA, is a senior manager of Tax Services with Berkowitz Pollack Brant Advisors + CPAs where she works with entrepreneurs and high-net-worth families to develop and implement strategies for business, individual and estate tax efficiency. She can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or info@bpbcpa.com.
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