How do self-employed individuals and household employers repay deferred Social Security tax?
The Coronavirus Aid, Relief, and Economic Security Act allowed self-employed individuals and household employers to defer the payment of certain Social Security taxes on their Form 1040 for tax year 2020 over the next two years. Half of the deferred Social Security tax is due by December 31, 2021, and the remainder is due by December 31, 2022.
Individuals can pay the amount due any time on or before the due date using one of the following options:
- Electronic Federal Tax Payment System (EFTPS)
- Credit/Debit card
- Check/Money order
These payments should be made as separate payments from other tax payments and designated as "deferred Social Security tax" to ensure they are applied to the deferred tax balance on the tax year 2020 Form 1040. The IRS won't recognize the payment for deferred tax if it is made with other tax payments or paid with the current Form 1040.
Individuals making payments in EFTPS should select 1040 US Individual Income Tax Returns and deferred Social Security tax for the type of payment. They must apply the payment to the 2020 tax year, where they deferred the payment.
Individuals using Direct Pay should select the reason for payment as "balance due." If they are using the Card Program to pay with a debit or credit card, they should select "installment agreement," and apply the payment to the 2020 tax year where the payment was deferred.
If an individual is unable to pay the full deferred tax amount, they should pay whatever amount they are able to pay by the installment due date to limit penalty and interest charges. If the installment amount is not paid in full, the individual will receive a balance due notice from the IRS with instructions to make a payment or apply for a payment plan.
Individuals can visit the Paying Your Taxes page on IRS.gov for additional information about ways they can pay, what to do when they can't pay, and viewing their tax account.
If you update a taxpayer's return that had a deferred Social Security tax payment from 2020 to 2021, Note 753 will be produced regarding repayment. This only a reminder note and no action is needed in Drake Tax 2021.