The IRS in News Release IR-2022-220[1] reminded taxpayers that the second payment of deferred employer Social Security and self-employment taxes is due no later than December 31, 2022. The release reminds taxpayers of this COVID-19 relief provision that applied in 2020, allowing affected taxpayers to defer paying these taxes:

As part of the COVID relief provided during 2020, employers could choose to put off paying the employer's share of their Social Security tax liability, which is 6.2% of wages. Self-employed individuals could also choose to defer a similar amount of their self-employment tax. Generally, half of that deferral was due on December 31, 2021. The other half is due on December 31, 2022.[2]

While the IRS sent notices to impacted taxpayers earlier this fall per the release, the agency reminded taxpayers they must still make this payment even if they did not receive the notice.

Consequences of Failing to Pay on Time or the Full Amount Due

While the release does not mention the consequences of failing to pay these amounts, we had previously noted[3] an IRS Program Manager Technical Advice (PMTA 2021-071)[4] that outlined severe consequences if a taxpayer failed to strictly comply with the due date for these payments or paid less than the amount due.

The PMTA stated:

If any portion of the deposit is not made by the applicable date, whether December 31, 2021, as to the first installment, or December 31, 2022, as to the second installment, then the deferral is completely invalid. In that event, the deposits were due on the usual deposit due dates provided in Treas. Regs. §§ 31.6302-1 and 31.6302-2, which would be the due dates used in determining any penalties under section 6656.[5]

The PMTA provided two examples of the consequences of a late payment, with the second example applying to a taxpayer who was only late with the second payment.

Example One-Insufficient Payment on December 31, 2021, PMTA 2021-007

Assume that an employer is liable for section 3111(a) tax, the employer's share of social security tax. Under CARES Act section 2302(a), these taxes are not due until the applicable due dates of December 31, 2021 and December 31, 2022. The employer is also required to deposit these taxes by section 6302 and its implementing regulations. Assume that any failure to deposit is not due to reasonable cause, and no other exception is applicable. Additionally assume that an employer has deferred, under CARES Act section 2302(a)(2), the deposit for the maximum amount of the employer's section 3111(a) tax for the 2020 tax year allowed to be deferred, and that this maximum amount deferred is a deposit of $50,000 of section 3111(a) taxes. As a result, under CARES Act section 2302(d)(3), the employer must deposit $25,000 by December 31, 2021, and the remaining $25,000 by December 31, 2022.

If, for the 2020 tax year, the employer deposits $5,000 on December 31, 2021, and makes no other deposits before December 31, 2021, the 10% penalty under section 6656(b)(1)(A)(iii), for failure to deposit tax for more than 15 days, applies to the entire $50,000, and the penalty amount would be $5,000. Because the first installment of $25,000, due on December 31, 2021, was not deposited by that date, the deferral is invalidated as to the entire $50,000. If, on February 7, 2022, the IRS issues a notice demanding payment of the balance of the first installment, and the employer does not pay the full amount demanded by February 17, 2022, the penalty rate increases to 15 percent.

Example Two-Late Payment for December 31, 2022, PMTA 2021-007

Assume the same facts as in the first example, except that the first deposit of $25,000 was timely made on December 31, 2021.

If the employer deposits the remaining $25,000 on February 28, 2023, the 10% penalty under section 6656(b)(1)(A)(iii), for failure to deposit tax for more than 15 days, applies to the entire $50,000, and the penalty amount would be $5,000. Because the second installment of $25,000, due on December 31, 2022, was not timely deposited, the deferral is invalidated as to the entire $50,000. If, on February 6, 2023, the IRS issues a notice demanding payment of the second installment of $25,000, and the employer does not pay the full amount demanded by February 16, 2023, the penalty rate increases to 15 percent.[6]

How to Make the Payments Due on December 31, 2022

The IRS news release provides the following discussion of options for making the payments:

Employers and individuals have several options for making this payment. Deferral payments can made through the Electronic Federal Tax Payment System (EFTPS), Direct Pay, by debit card, credit card or digital wallet, or with a check or money order. No matter which payment option is chosen, it must be made separately from other tax payments and deposits. This will ensure that it is credited properly and will help avoid follow-up bills or notices.[7]

EFTPS Payments

The release provides the following instructions to pay via the EFTPS system:

Employers and individuals can make the deferral payments through enrollment in the Electronic Federal Tax Payment System, a free service available from the Treasury Department. On the Tax Type Selection screen, choose Deferred Social Security Tax and then change the date to the applicable tax period (the calendar quarter in 2020 for which tax was deferred). Visit EFTPS.gov or call 800-555-4477 or 800-733-4829 for details.[8]

Direct Pay Payments

The IRS next describes how self-employed taxpayers (only) may use the Direct Pay option:

Alternatively, self-employed individual taxpayers can choose Direct Pay to pay directly from a checking or savings account. This service is available free only on Direct Pay With Bank Account. Select the "Balance Due" reason for payment and apply the payment to the 2020 tax year where the payment was deferred. Direct Pay is not available to pay employment taxes.[9]

Paying with a Debit Card, Credit Card or Digital Wallet

The third option discussed is paying the tax due with a debit card, credit card or digital wallet:

If paying with a credit card, debit card or digital wallet, select "installment agreement." Apply the payment to the 2020 tax year where the payment was deferred. Note that the IRS does not charge a fee for this service, but the authorized third-party payment processors do. Visit IRS.gov/payments for details.[10]

Paying with a Check or Money Order

The final option, which simply directs taxpayers to read the instructions for Form 941, is pay the amount due via a check or money order:

Make any check or money order payable to United States Treasury, not IRS. For more information on where to mail payments see Instructions for Form 941.[11]

The web address taxpayers are directed to is:

https://www.irs.gov/instructions/i941#en_US_202206_publink100065907

[1] “IRS reminder: For many employers and self-employed people, deferred Social Security tax payment due Dec. 31,” IR-2022-220, December 14, 2022, https://www.irs.gov/newsroom/irs-reminder-for-many-employers-and-self-employed-people-deferred-social-security-tax-payment-due-dec-31 (retrieved December 18, 2022)

[2] “IRS reminder: For many employers and self-employed people, deferred Social Security tax payment due Dec. 31,” IR-2022-220, December 14, 2022

[3] Ed Zollars, CPA, “PMTA Argues That Taxpayers Who Make Minor Errors in Depositing Deferred FICA Under CARES Act Timely Owe Penalty on Entire Amount Deferred,” Current Federal Tax Developments website, August 24, 2021, https://www.currentfederaltaxdevelopments.com/blog/2021/8/24/pmta-argues-that-taxpayers-who-make-minor-errors-in-depositing-deferred-fica-under-cares-act-timely-owe-penalty-on-entire-amount-deferred (retrieved December 18, 2022)

[4] PMTA 2021-07, August 23, 2021, https://www.irs.gov/pub/lanoa/pmta-2021-07.pdf (retrieved December 18, 2022)

[5] PMTA 2021-07, August 23, 2021

[6] PMTA 2021-07, August 23, 2021

[7] “IRS reminder: For many employers and self-employed people, deferred Social Security tax payment due Dec. 31,” IR-2022-220, December 14, 2022

[8] “IRS reminder: For many employers and self-employed people, deferred Social Security tax payment due Dec. 31,” IR-2022-220, December 14, 2022

[9] “IRS reminder: For many employers and self-employed people, deferred Social Security tax payment due Dec. 31,” IR-2022-220, December 14, 2022

[10] “IRS reminder: For many employers and self-employed people, deferred Social Security tax payment due Dec. 31,” IR-2022-220, December 14, 2022

[11] “IRS reminder: For many employers and self-employed people, deferred Social Security tax payment due Dec. 31,” IR-2022-220, December 14, 2022