The economic downturn resulting from the COVID-19 pandemic has significantly impacted the financial health of small businesses across America. As business owners struggle to navigate uncertain economic times, postponing the payment of hefty taxes may seem like an ideal solution. Though this may be the right option for businesses under certain circumstances, there are consequences that business owners should be aware of when making this decision. Experts are available to assist people who are struggling with this decision with tax appeals, repayment plans, and other options.
Tax Options For Small Business Owners During COVID-19
The Coronavirus Aid, Relief, and Economic Security (CARES) act provides solutions for business owners who are struggling to pay business and payroll taxes during these times of financial hardship. One is for small businesses to defer the payment of the employer’s share of social security taxes. It is important for business owners to maintain that this is a deferment and not a tax credit. For a period beginning on March 27, 2020 and ending on December 31, 2020, these taxes can be deferred with the stipulation that businesses report deferrals on Forms 941. Business owners are also required to pay 50% of the taxes owed by December 31, 2021, and the remainder by December 31, 2022. Those who are self-employed can also benefit from this option, though these individuals can only defer 50% of social security taxes owed.
In addition to the deferment of the employer’s social security taxes, a memorandum released on August 8, 2020 allows businesses to defer employee portions as well. Social security taxes on wages for employees earning less than $4000 biweekly can be deferred until December 31, 2020. These taxes must then be paid back between January 1, 2021 and April 30, 2021.
Consequences for Deferring Tax Payments
Postponing payroll tax payments can yield serious consequences for employers if prior arrangements are not made. The IRS will send a bill twice for taxes owed plus penalties to any business that fails to pay quarterly taxes. If both attempts to retrieve funds are ignored, the IRS may begin collection efforts which can significantly affect your credit profile . Bank accounts, business inventory, and all assets can be seized in an attempt to settle tax debt. A person deemed as the responsible party for payment and withholding of taxes on behalf of the business may face personal penalties and, in some cases, prison time.
Navigating Business Taxes During COVID-19
Making the right choices regarding tax payment is crucial for business owners looking to avoid hefty fines and penalties. Though special provisions are available for those struggling with tax payments during times of economic uncertainty, employers are still held responsible for all taxes owed. For many businesses, an experienced legal representative can assist with analyzing tax burdens and helping small businesses stay on track during COVID-19.
