How Self-Employed Individuals and Household Employers Repay Deferred Social Security Tax
2020 was a very busy year for tax relief. One of the biggest benefits to self-employed individuals was the ability to defer payment of your self-employment taxes (social security and Medicare) and pay them over the next two years (2021 and 2022).
If you are wondering if you actually took advantage of this, check out your Form 1040, page two, line 31. If this amount is blank, then you were either ineligible for this deferment or did not use it. If you were able to utilize the tax benefits from the CARES Act and defer payment on certain Social Security taxes through the Form 1040, you may be wondering how to make your first payment.
The first payment is half of the amount deferred from your 2020 tax return, and is due on or before December 31, 2021, second payment is due December 31, 2022. (Look at 2020 Schedule SE line 26 to see the full amount of your deferral).
Penalties and interest could arise from NOT making a timely payment, and possibly losing the deferral benefit from the CARES Act. The loss of the deferral would generate late payment penalties on any unpaid deferral amount.
There are several payment methods; EFTPS, Direct from bank account, Credit/Debit card, Check or money order, Cash (yes the IRS can take cash!). We have a great blog on how those work and where you can go to use one of those payments. See: Now I owe the IRS…Why? And how do I pay them? https://www.frushonaccounting.com/blog.php?id=10
Our Preferred Method
Go to https://www.irs.gov/payments and select “Bank Account (Direct Pay)”. Using this method is secure, and does not incur any credit card fees.
Select “Make a Payment” and follow the prompts. To make sure the payment is applied correctly to the deferred tax select the following from the drop-down menus:
Then follow the instructions for the remaining steps to complete payment.
Credit Cards: Please note there are fees for using a debit or credit card to pay. On the IRS website, select the payment processor that best suits your preferences. Once navigating to the personal tax payments for any of the 3 sites, ensure that you designate your payment in the same manner as noted above for “Bank Account".
For Cash, Check, and Money Order payments ensure to designate the payment for “Deferred Social Security Tax”, add your SSN and Tax year (2020) for proper processing. If using the EFTPS service, select 1040 US Individual Income Tax Returns and Social Security Tax for the type of payment. This method is not the most common for individuals, but if an account with EFTPS is established this may be easier for some.
Please contact us with any questions!
Jose Mata Rodriguez | 08/12/2021