Businesses May Face Stiff Penalties of 10% for Missing First CARES Installments

CPA firm BKM Sowan Horan is advising companies that took advantage of the payroll tax deferral under the Coronavirus Aid, Relief and Economic Security Act (CARES Act) to be aware of an IRS position regarding repayment of the deferred taxes. If repayment of 50 percent of the initial deferred taxes is not repaid by December 31, 2021, businesses will face a stiff penalty of 10 percent and may be liable for an accelerated payment and additional penalties.

The CARES Act allowed businesses to elect to defer the employer’s share of social security tax on wages paid to employees between April 1 and December 31, 2020. This provided cash flow relief to businesses struggling to cope with the pandemic. The deferred taxes are to be repaid in two installments: 50 percent due by December 31, 2021 and 50 percent due by December 31, 2022.

A late payment of the first installment of the deferred tax due by the end of 2021 accelerates the payment of the second installment that otherwise would not be due until December 31, 2022, and the 10 percent penalty would be due on the entire amount. If the IRS demands payment of the entire amount of deferred taxes and that is not paid within 10 days, the penalty is increased to 15 percent.