As of July 2024, nearly 1.1 million employers deferred approximately $133 billion in Social Security taxes for tax year 2020. An estimated $131 billion (98%) was paid; however, 167,373 employers had approximately $2 billion in unpaid deferrals, according to a report released Tuesday by the Treasury Inspector General for Tax Administration.
Under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), businesses could defer the full amount of the employer share of the Social Security tax paid between March 27, 2020, and Dec. 31, 2020. Self-employed individuals could defer 50% of the total Social Security tax for wages paid during this same period.
In addition, in August 2020, the Trump administration directed the Treasury Department to expand the deferral to include the employee’s portion of the Social Security tax or the railroad retirement tax equivalent for wages paid from Sept. 1, 2020, through Dec. 31, 2020, in order to increase employee paychecks during the COVID-19 pandemic.
TIGTA noted that the goal of its review was to evaluate the IRS’s efforts to ensure that taxpayers paid their deferred Social Security tax as required.
According to the IRS, there were approximately 10,000 employers remaining that hadn’t paid their deferral as of May 2025, and the tax agency had yet to manually adjust their account which would subject the unpaid amounts to standard collection processes, TIGTA said.
The report noted that employers that didn’t timely pay their deferred Social Security taxes by the December 2021 and December 2022 due dates, or by the time the IRS manually adjusts their account, are subject to the IRS’s standard collection processes. Accounts with unpaid deferrals are also subject to the assessment of penalties, such as failure to pay tax and failure to make deposit of taxes penalties.
As of July 2024, the IRS assessed an estimated $591 million in penalties and interest on 403,711 tax accounts for employers that failed to timely pay their deferred Social Security taxes.
However, TIGTA found that the IRS incorrectly assessed manual failure to deposit penalties totaling $73.7 million on 9,548 business tax accounts. These employers had credits, such as payments or refund offsets available, but these transactions didn’t post to their tax accounts in a timely fashion. The delay in posting these transactions caused the employer to have a delinquent deferral and resulted in the penalty being overstated, according to the report.
“IRS officials indicated that the late posting of a payment or credit could be due to delays in processing payments or credits becoming available from processed amended tax returns for earlier tax periods,” the report states. “There is no process to automatically adjust manually assessed penalties when payments are posted late.”
TIGTA recommended that the IRS review the population of 9,548 business tax accounts with late posted payments and credits that resulted in overstated failure to deposit penalties, ensuring that the penalties are corrected for those accounts. The IRS agreed with this recommendation and said it will ensure that the penalties are adjusted on the identified accounts.
In response to the report’s findings, Lia Colbert, commissioner of the IRS’s Small Business/Self-Employed Division, wrote, “We have continued working diligently through a range of unique technical and procedural challenges to ensure taxpayers pay their deferred Social Security taxes as required by the CARES Act. We have continued collaborating with multiple functions within Taxpayer Services, Small Business/Self-Employed Division, and the Chief Financial Office. These offices identify taxpayer accounts and resolve technical conditions to ensure reversal adjustments post correctly without interfering with other actions.
“Per Section 2302 of the CARES Act, employers were allowed to defer the employers’ share of Social Security taxes during the 2020 tax year for taxes imposed from March 27, 2020, to December 31, 2020. To account for this special circumstance, we created a temporary credit equal to the amount of the deferral on employers’ accounts in our systems. Employers were required to pay and deposit 50 percent of the eligible amount to be deferred by December 31, 2021, and the remainder by December 31, 2022. When the employer does not pay or deposit the required amount by the installment due dates, we reverse the temporary credit on the applicable accounts.
“We have completed 99.5 percent of all reversals for the first installment and 98.7 percent of all reversals on the second installment. We are working to complete the reversals for both the first and second installment by December 31, 2025.”
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Tags: CARES Act, employers, IRS, Payroll Taxes, Social Security taxes, Taxes, TIGTA
