What Is The Payroll Tax Deferral Provision? (2023 Guide)

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There’s one payment left for the payroll tax deferral provision. Find out the need-to-know info for payments in 2022.

Panther
The Team
April 25, 2023

For small businesses, 2020 and 2021 were difficult.

With the COVID-19 pandemic essentially shutting down or grinding to a halt entire industries, keeping the lights on became a genuine challenge for many.

The impact was felt on a broader scale as well, with airlines revenues for example declining by 60% in 2020 and not expected to fully rebound until 2024, but small businesses that in some cases were already struggling to stay afloat with restrictions in place globally.

Some thrived, while many others were on the verge of crumbling. In the early days of the pandemic restrictions being in place, some small businesses say they barely had enough cash to last roughly two weeks, which become a major problem as many of them were forced to close their doors entirely.

One of the primary responses from the U.S. government in particular was to allow these business owners to defer payroll taxes to avoid needing to cover costs with cash they simply didn’t have.

Thus, the payroll tax deferral provision was introduced.

Cheat sheet: The need-to-know details

  • The first half of the deferred tax amount was due on January 3, 2022.
  • The remaining portion is due by December 31, 2022. 
  • If you don’t pay your employment taxes on time, you’ll face a penalty of 10% of the entire deferred amount, increasing to 15% if the payment isn’t deposited within 10 days of the IRS issuing a notice.

What is the payroll tax deferral provision?

The payroll tax deferral provision allows small business owners in the U.S. to delay payment of the employer portion of Social Security tax until December 2022. It was written into law in March 2021 under the American Rescue Plan Act and applies to wages paid between March 27, 2020, and December 31, 2021.

Although the deferral is until December 2022, half of the amount deferred was due on January 3, 2022. The remaining amount is due on December 31, 2022.

4 questions you may be asking about the payroll tax deferral provision

The employee payroll tax deferral was created to help small business owners address immediate cash flow needs when the COVID-19 pandemic was at its peak.

It’s not open to new applicants, but you likely have some questions on the specifics if you decided to opt-in when the program was rolled out.

1. Who was eligible for payroll tax deferral provision?

All business owners were eligible for the payroll tax deferral. Government entities were also included. Since we’re in the payback period at this stage, this is less important today. We’ll be focusing mainly on what’s happening next.

2. How is the provision impacting payroll taxes in 2022?

The key term here is “deferral”. If you opted-in to this special provision, you were essentially putting off paying a 6.2% Social Security tax per employee.

This means that in 2022, you’ll be paying back all taxes that were deferred in 2020 and 2021, along with your 2022 payroll taxes.

3. What’s the difference between the payroll tax deferral provision & employee retention credit?

There are two core differences between the employee retention credit and the payroll tax deferral provision:

a) The amount deferred / credited.

The employee retention credit only applies to some employment taxes, equal to half of the qualified wages paid between March 12, 2020, and January 1, 2021. On the other hand, the payroll tax deferral provision applies to all of the employer’s portion of the Social Security tax paid between March 27, 2020, and December 31, 2021.

b) Who was eligible.

Strict guidelines were provided for determining who was eligible for the employee retention credit. Congress made the payroll tax deferral provision available to all business owners and government entities.

4. What’s the difference between deferring vs. withholding payroll taxes?

Tax deferral occurs when taxes are owed but a special provision is provided by the government for that payment to be made at a later date.

Employers withhold income taxes for employees and pay that money to the IRS. 

What you need to know in 2022

Two deferral payments are due this year if you opted-in to the payroll tax deferral provision.

You should have already made one payment in January and be working towards making the final payment in December. If you miss the December payment, you’ll end up needing to pay even more than you may already owe to the IRS.

The payroll tax deferral provision only applies to U.S.-based businesses and employees. If you’re managing a global team, Panther can help you navigate the process of withholding and managing payroll taxes overall. In other words, you find the talent—we’ll help you pay your global team with ease.

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