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Self-employed? What to know about repaying deferred Social Security taxes

Posted on July 22, 2021

The Coronavirus Aid, Relief, and Economic Security Act has offered relief to many taxpayers during the uncertainties of 2020 and 2021. Some relief has been completely tax-free and other tax-related programs need to be paid back.

Here’s what some self-employed taxpayers need to know, according to the CPAs at TEIPEN CPA Group.

If you are self-employed (or household employed) and elected to defer the payment of Social Security taxes on Form 1040 for tax year 2020 (and/or 2021), half of that deferred Social Security tax is due by December 31, 2021, with the remainder due by December 31, 2022.

How individuals can repay the deferred taxes
Individuals can pay their 2020 deferred tax amounts any time on or before December 2021 by making payments through the Electronic Federal Tax Payment System or by credit or debit card, money order or with a check.

Critically, points out Mike Poynter, CPA, “Be sure to 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 as deferred tax if it is with other tax payments or paid with the current Form 1040.” 

  • You must designate the payment as “deferred Social Security tax.”
  • If you are using EFTPS for your payments, select 1040 US Individual Income Tax Returns and deferred Social Security tax for the type of payment.
  • You must also specify that the payment is for the 2020 tax year.
  • Visitgov for details.

What if you are unable to pay in full by the installment due date?
Those 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, the IRS will send you a balance due notice. Simply follow instructions on the notice to make a payment or apply for a payment plan.

You can also visit the Paying Your Taxes page on IRS.gov to view your account and find additional information about ways you can pay, what to do when you can’t pay.

As always, you can check in with TEIPEN CPA Group for guidance or questions on this or any other tax-related question you may have.