How Employers Should Handle Repayment of Deferred Payroll Taxes

For businesses large and small, staying in the black during the COVID-19 pandemic required an immense amount of skill, strategy and cost-cutting measures. The Coronavirus Aid, Relief and Economic Security (CARES) Act, passed in March 2020, provided relief measures to help businesses and individuals survive their economic challenges.

One of these relief measures, the Deferred Payroll Tax, gave employers the option to defer their portion of Social Security taxes while business remained slow or stopped. This option was different from the additional executive order signed by President Donald Trump in August 2020 which allowed employees to defer their Social Security taxes.

Normally, employees and employers pay a combined 12.4 percent of each paycheck to the federal government for Social Security, with 6.2 percent by employers and 6.2 percent by employees. For employees, this is usually labeled FICA tax on pay stubs (FICA stands for Federal Insurance Contributions Act).

With businesses being hit hard by the pandemic, the federal government offered the option for employers to suspend payment of their half of these taxes, which many businesses decided to do to stay afloat.

For employers who opted in: it is now time to pay back the money owed. Repayment for these deferred loans began January 1, 2021, and these taxes need to be repaid by the end of this year (technically January 3, 2022, as December 31, 2021 is a holiday) to avoid any penalties from the federal government.

The IRS has made it clear that penalties and interest will apply to any unpaid balance of the deferred portion not paid on time, and that for employees who no longer work at the company or organization, the employer is entirely responsible for the deferred amount, both for their portion and the employees’ portion.

If you’re an employer who opted to defer your taxes, planning your repayment schedule needs to start now. Calculate the amount that you have due and set aside a portion of revenue to help fulfill this need during the next few months. More information about specific deadlines, and where to send your payments, is available on the IRS website. Your tax professional can also answer your specific questions, and help you make a plan.

With all the stress of the pandemic, accounting for your deferred payments doesn’t have to be challenging. Donohoo Accounting Services has more than 20 years of experience helping clients resolve their tax and financial issues. Contact us today or call 513-528-3982 for more information about repaying deferred payroll taxes, or to schedule a free consultation. We’re excited to serve you! For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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6 Common Mistakes Business Owners Make on Their Taxes

Filing your small business’s tax return may be a dreaded task you’re tempted to put off until April 14, but we advise that you don’t. That’s because mistakes are made when you’re in a rush, resulting in interest charges, penalties or unwanted attention from the IRS. Mistakes can be avoided by being prepared and planning ahead. Here are the 6 most common tax mistakes business owners make:

Mistake #1: Filing late

It’s important to file your taxes on time to avoid a 5 percent per month penalty by the IRS (that increases until the return is filed), a 6 percent interest penalty and a late payment penalty. You can request a filing extension, but you will still need to pay a portion by the original due date. It’s better to avoid the headache, be organized and file on time.

Mistake #2: Not paying estimated taxes during the year

If you are a sole proprietor, S corporation, are self-employed or a partner and you expect to owe $1,000 or more when you file a return, you are required to make estimated tax payments throughout the year. The same is true if you are a corporation expecting to owe $500 or more in taxes.

Mistake #3: Not having organized, visible financials

Using Excel to track your income, expenses and receipts might suffice when you are first starting out, but once you get bigger you will need a program that is more robust. Your financials need to be up-to-date, accurate and all in one place so you can make good tax and cash decisions.

Mistake #4: Intermingling personal and business expenses

It’s important to keep your business expenses separate from your personal ones. You can do this by having a separate bank account and credit card for your business, and always use your business credit card for business expenses. Even if you purchase both personal and business items at an office supply store, use different credit cards to pay for them so you can keep those expenses separate.

Mistake #5: Not tracking expenses

Throughout the year you need to save receipts, log the business miles you put on your car and track your expense categories. Did you know that only 50 percent of certain business meals are deductible? Platforms like QuickBooks and Freshbooks can help you keep track of expenses, and apps like MileIQ can track your business mileage.

Mistake #6: Not getting professional help

It may be tempting to save money and do everything yourself, but unless you know what you are doing, it could cost you time, money and headaches in the end. Consider consulting with a bookkeeper or accountant throughout the year to make sure you have good processes in place come tax season.

Donohoo Accounting Services has more than 20 years of experience helping clients with their tax and financial issues. Advising small businesses on their taxes is what we do best. If you have any questions about preparing your taxes or would like to know more about the services we provide, please call us at 513-528-3982 for a free consultation.

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