CARES Act Payroll Tax Deferral Provision Due To Expire December 31

Dec 14, 2020

Under the Coronavirus Aid, Relief and Economic Security (CARES) Act signed into law earlier this year, businesses were provided the option to delay paying the employer portion of the Social Security payroll taxes on wages paid for the period from March 27, 2020, through Dec. 31, 2020. As we close on 2020, now is the time to set reminders for the following as this provision is set to expire:

Updating your payroll deductions for 2021 – If you elected to defer your payroll taxes, you will want to ensure your employer portion of withholdings has been reset for the new year. If you work with a payroll provider, connect with them to make sure you have stopped deferring. For those organizations who manage payroll internally, again, double check your deferral has ceased. In addition, you will want to make sure your fourth-quarter Form 941 (due January 31, 2021) reflects what you deferred.

Due dates for repayment – Any 2020 deferred payroll tax amounts are due to the federal government in two installments.

  • One-half at the end of December 31, 2021.
  • The remaining half at the end of December 21, 2022.

While employers are not required to submit their first payment of deferred taxes until December 2021, the CARES Act does not prohibit employers from early payment.

Income tax deduction – Employers who have opted to defer may be surprised to learn that these accrued payroll taxes, while in the books for 2020, may not be deductible from their taxable income until later. Accrual basis taxpayers seeking to claim deductions on their 2020 returns for deferred payroll tax liabilities incurred prior to Dec. 31, 2020, may be able to do so if they pay their deferred payroll taxes by Sept. 15, 2021. This may be particularly appealing to taxpayers generating losses in 2020 that will be carried back to higher tax years.

Planning ahead is key! To learn more about how this payroll tax deferral may impact your business, please contact your William Vaughan Company advisor today.

Categories: COVID-19, Tax Compliance