Tom Ochsenschlager, CPA, JD
In accordance with the Coronavirus Aid, Relief and Economic Security (CARES) Act, employers were permitted to delay payment of their 6.2% share of the Social Security tax that was otherwise due from March 27 through December 2020. Half of the deferred amount is now due Dec. 31, 2021, with the other half due Dec. 31, 2022.
The IRS Chief Counsel’s office has released a memorandum stating that if the full amount of the deferred tax is not paid in accordance with those two due dates, the IRS will impose the Section 6656 late payment penalty on the entire deferred amount, not just the underpayment amount. In effect, the Chief Counsel seems to be taking the position that if the full deferred amount is not paid by those two dates, then the taxpayer did not qualify for the deferral.
The penalty is significant: 10% where the underpayment is more than 15 days (which would be the case where the deferral was “disqualified”) and 15% if not paid within 10 days after receiving a notice of underpayment from the IRS.
Presumably, the IRS will not impose the penalty on the entire deferral if the underpayment is relatively minor and there is an exception to the penalty if the taxpayer can establish that the underpayment was due to a reasonable cause and not attributable to willful neglect. That said, it is very important that the payments on Dec. 31, 2021 and Dec. 31, 2022 are calculated to be very accurate.