Calculating the Deferred Tax Payment

Taxpayer dollars must be repaid to the IRS on their own accord.

The Electronic Federal Tax Payment System may be used to make deferral payments (EFTPS). To guarantee that the funds go toward the deferred payroll tax amount, these payments must be made in a manner distinct from other tax payments. Sending it in with other tax payments or depositing it will not work since the IRS system will not recognize it.

A company’s repayment history may not be reflected in the IRS’s reminder notifications. The IRS may have been slow to update its records, or maybe the company paid out more than half of what it could have delayed in 2020, thus the difference between the two amounts is more than the amount the firm could have deferred. A company may avoid fines by paying the full amount due, even if it’s more than what’s indicated in the notifications.

To the Internal Revenue Service, how do businesses remit payroll taxes withheld?

When the payroll tax deferral period ends, you may pay the IRS in several different ways if you choose to delay all or part of the employer component of FICA taxes for earnings.

The IRS prefers to receive payments via the Electronic Federal Tax Payment System (EFTPS) website, which may be accessed by businesses. To properly record the EFTPS entry as a final payment on an IRS notice, businesses filing Form 941 must specify the calendar quarter in 2020 to which the payback applies. When filing taxes for the 2020 fiscal year, businesses should use the appropriate return for filing taxes. You may also send the IRS a check or money order, or use a credit or debit card.

How may the timing of paying back payroll tax deferral by employers influence present and future tax planning and deductions?

Deferred employer payroll taxes may not be deductible until they are paid in 2021, even if they were accumulated in 2020. If you plan to employ the whole deferral period and pay half by December 31, 2021, and the other half by December 31, 2022, you may claim a deduction of half in each of those years, regardless of whether you utilize the accrual or cash method of accounting.

A firm that employs the accrual method and has a fiscal year end of December 31 and decides to pay the postponed taxes before September 15, 2021, may be eligible to deduct the payment from its taxes for the year 2020. This option may be attractive if your company sustained losses in 2020 and you can afford to make payments before September 15, 2021. However, if a company is struggling with cash flow, it may be preferable to utilize the whole deferral period.