Understanding Your CP256V Notice

Post Date: 11/1/21
Last Updated: 11/1/21

Summary

Cross References
https://www.irs.gov/individuals/understanding-your-cp256v-notice

Author's Comment: After looking at the draft versions for the 2021 Forms 1040, Schedule 2, and Schedule SE, we noticed that there is no line to report deferred Social Security taxes from the 2020 tax year. It appears that any self-employed taxpayer who deferred a portion of his or her SE taxes to the 2021 and 2022 tax years must pay those taxes separately under the instructions found in notice CP256V. Do not assume increasing estimated tax payments for 2021 will cover the deferred taxes, as they are not going to be reconciled on the 2021 or 2022 tax returns. The following is updated information posted on the IRS website for taxpayers who receive a CP256V notice with instructions on how to pay back the deferred taxes.

What this notice is about. This is a reminder that Social Security taxes deferred under the CARES Act Section 2302 are due by December 31, 2021 and December 31, 2022. If you also deferred the employee share of Social Security taxes under Notice 2020-65, as modified by Notice 2021-11, the balance is included in the installment amount due by December 31, 2021.

We’ll issue this notice before each installment is due.

What you need to do:
• Pay your current installment amount by the due date shown on the notice. Note: The notice may not reflect recent payments, but they will still be recorded correctly on your account.
• Review your tax return for the tax period in which you deferred Social Security taxes and subtract any payments you’ve made. Compare that figure with the amounts shown on your notice. If you discover an error, please contact us at the telephone number shown on the notice.

What you need to know:
• The first installment amount, due December 31, 2021, is half the employer’s share of Social Security taxes you could have deferred (which includes any amount of the employee’s share of Social Security taxes deferred under Notice 2020-65, as modified by Notice 2021-11) minus all deposits and payments we’ve received. For more information, please review Q&A 18 at IRS.gov/etd.
• The second installment, due December 31, 2022, is the remaining unpaid deferred taxes.

Frequently asked questions:
Do I have to reply to this notice? No, this is a courtesy notice for your information only. We don’t need a response.

How do I make my repayment? You can make the deferral payments through the Electronic Federal Tax Payment System (EFTPS), by credit or debit card, or with a check or money order.

Note: You must make these payments separate from other tax payments to ensure they’re applied to the deferred payroll tax balance. IRS systems won’t recognize the payment if it’s with other tax payments or sent as a deposit.

To make the deferred payment using EFTPS, select deferral payment and change the date to the applicable tax period for the payment. You can visit www.eftps.gov or call 800-555- 4477 or 800-733-4829 for details.

If the employee no longer works for the organization, you must repay the entire deferred amount of the employee’s portion of Social Security tax then collect the employee’s portion using your own recovery methods.

How do I make a payment for a deferred amount on an aggregate return? Third-party payers (such as an Internal Revenue Code Section 3504 agent, a certified professional employer organization, a non-certified professional employer organization, or other agents designated with Form 2678, Employer/Payer Appointment of Agent) file aggregate returns to show the employer’s deferred tax.

Employers should coordinate with their third-party payer to pay deferred taxes owed by the December 31, 2021, and December 31, 2022, due dates. This helps ensure the third party properly records the payment and the correct employer identification number (EIN) and tax period are noted with the payment so we can apply it properly.

Employers should continue coordinating with their third-party payer to ensure payments are applied under the third party’s EIN (unless the employer receives an IRS notification stating the unpaid deferral amount has been moved to their EIN).

What if I cannot pay my deferred taxes? You may be eligible for a payment plan or other payment options.

Note: If we don’t receive your payment by the applicable due dates, the deferred taxes may be subject to Failure to Deposit penalties.

When should I repay deferred taxes?
The following table shows the schedule for repayment:

If Then
You’re repaying the employee share of deferred Social Security taxes Deposit the deferred taxes ratably throughout the 2021 calendar year. You must repay the entire deferred tax by December 31, 2021.
You’re paying the first half of the eligible amount of the employer share of Social Security taxes Payment is due by December 31, 2021
You’re paying the second half of employer deferred taxes Payment is due by December 31, 2022

Penalties and interest begin accruing on the day payments are due if they aren’t timely paid.

How do third-party payers report unpaid deferred amounts from aggregate returns?
Employers are solely responsible for payment of the deferred taxes they requested for any wages paid by the third-party payer. If the third-party payer filed an aggregate return and receives a balance due notice for the employer’s unpaid portion of deferred Social Security tax, the third-party may notify the IRS by eFaxing the following information with a coversheet to 844-255-1856:
• Copy of the Schedule R (Form 941 or 943) for relevant tax periods.
• Client (common law employer) name, EIN, and current address.
• Total deferred amount per tax period.
• Unpaid part of the deferred amount, per tax period.
• List of deferral payments by client or by the third-party payer on behalf of client(dates and amounts), per tax period.
• If applicable, date client separated from aggregate filer.
Return to Tax Industry News
© Tax Materials, Inc. 2021