Throughout the COVID-19 pandemic, the IRS has attempted to work with small business taxpayers to enable them to optimize cash flow and weather the storm. One such way was by allowing the deferral of payment of social security taxes for self-employed individuals. These individuals were allowed to defer the payment of 2020 social security tax to the 2021 and 2022 years.
That was a great benefit, and one taken advantage of by many small businesses at 2020 filings. However, now many are wondering exactly when are these amounts due, and how to pay these deferred taxes.
How individuals can repay the deferred taxes
Individuals can pay the deferred amount any time on or before the due date. They:
- Can make payments through the Electronic Federal Tax Payment System or by credit or debit card, money order or with a check.
• Should be separate payments from other tax payments to ensure they are applied to the deferred tax balance on the tax year 2020 Form 1040 since IRS systems won’t recognize the payment for deferred tax if it is with other tax payments or paid with the current Form 1040.
• Should designate the payment as “deferred Social Security tax.”
Individuals making deferred Social Security tax payments in EFTPS should select 1040 US Individual Income Tax Returns and deferred Social Security tax for the type of payment. They must apply the payment to the 2020 tax year where they deferred the payment. Taxpayers can visit EFTPS.gov for details.
What individuals should do if they are unable to pay in full by the installment due date
Individuals who are unable to pay the full deferred tax amount should pay whatever they are able to pay by the installment due dates to limit penalty and interest charges.
If the installment amount is not paid in full, IRS will send the taxpayer a balance due notice. Taxpayers should follow instructions on the notice to make a payment or apply for a payment plan. They can also visit the Paying Your Taxes page on IRS.gov for additional information about ways they can pay, what to do when they can’t pay, and viewing their tax account. If you’d like help navigating this unclear world of IRS tax resolution notices and payment plans, please contact us today for an initial consultation!