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Will Payroll Tax Deferral Be Forgiven? This is a question that has been on the minds of many business owners who took advantage of the payroll tax deferral option during the COVID-19 pandemic.
During COVID-19 pandemic, the government implemented various relief measures to ease the financial burden. One of these measures was the payroll tax deferral, which allows employers to delay payment of certain payroll taxes. However, many businesses are now wondering whether the deferred taxes will need to be paid back or if they will be forgiven.
In this article, we will explore the question on everyone’s mind: will payroll tax deferral be forgiven?
What Is Payroll Tax Deferral?
Payroll tax deferral is a provision in the Coronavirus Aid, Relief, and Economic Security (CARES) Act that allows employers to defer the deposit and payment of the employer’s portion of social security taxes and certain railroad retirement taxes.
This relief measure was introduced to help businesses that were struggling to meet their financial obligations during the COVID-19 pandemic. The deferral applies to payments due between March 27, 2020, and December 31, 2020. Essentially, employers who chose to defer payroll taxes were allowed to hold onto that money temporarily, with the understanding that they would eventually have to pay it back.
It’s important to note that the deferral only applies to the employer’s portion of the payroll taxes, and not to the employee’s portion, which still had to be withheld and remitted as usual. This relief measure was intended to provide businesses with some immediate cash flow relief, but the question remains whether the deferred taxes will need to be repaid or if they will be forgiven.
Is Payroll Tax Deferral Optional?
Yes, payroll tax deferral was optional. Employers could choose whether or not to defer the payment of their portion of social security taxes. It’s important to note that the deferral only applied to the employer’s portion of social security taxes and not to the employee’s portion or to Medicare taxes.
Is Payroll Tax Deferral Deductible?
No, payroll tax deferral is not tax-deductible. Since the deferred taxes are treated as taxable income in the year they are paid, employers cannot claim a deduction for the deferred taxes when they file their taxes.
It’s important to keep in mind that payroll tax deferral is not a tax credit, but rather a temporary measure that allows employers to delay payment of certain payroll taxes to provide some relief during difficult times.
How Do I Repay Deferred Payroll Taxes?
The deferred taxes had to be paid back, but the repayment schedule varied depending on the type of taxpayer. For employers who deferred their social security tax deposits, the deferred taxes had to be paid back in two installments.
Half of the deferred amount was due by December 31, 2021, and the remaining half was due by December 31, 2022. Employers who deferred their social security tax payments were obliged to pay back the deferred amount by the same deadlines.
What Is The Tax Treatment For Payroll Tax Deferral?
The tax treatment for payroll tax deferral was that it was not tax deductible, and the deferred taxes were treated as taxable income in the year they were paid. Employers who chose to defer their payroll taxes during the period of relief should have planned accordingly for the tax implications in the year of repayment.
This means that when the deferred taxes are repaid, they will be subject to regular income tax rates and must be accounted for as taxable income in the year they are paid. It’s important to note that the taxes were only deferred and not forgiven, so employers who took advantage of this relief measure will need to pay the deferred taxes at a later date.
Will Payroll Tax Deferral Be Forgiven?
As of now, there is no indication that payroll tax deferral will be forgiven. The deferral is simply a delay in payment, and the deferred taxes must be paid back according to the repayment schedule. Employers who deferred their payroll taxes should have planned to repay the deferred amount by the applicable deadlines to avoid penalties and interest.
In conclusion, while payroll tax deferral provided much-needed relief to businesses during the COVID-19 pandemic, it is important to understand that the deferred taxes must be paid back according to the repayment schedule.
Employers who deferred their payroll taxes should plan accordingly for the tax implications and ensure that they have the necessary funds to make the payments. Understanding the question of will payroll tax deferral be forgiven is crucial for businesses to plan their finances effectively.