Employers never paid $2B in deferred payroll taxes

Approximately 10,000 employers never paid the Social Security taxes they have deferred ever since the pandemic, according to a new report.

The report, from the Treasury Inspector General for Tax Administration, examined an option offered by the Trump administration in 2020 allowing employers to defer the employee portion of Social Security taxes between Sept. 1 and Dec. 31, 2020, as a form of pandemic relief. The report found that over 1 million employers opted to use the payroll tax deferment, and most paid it as required. However, approximately $2 billion in unpaid deferrals remain (as of July 2024). 

The CARES Act enabled employers and self-employed individuals to defer Social Security tax payments during the pandemic. This temporary deferment of Social Security taxes were expected to be paid by December 2021 or December 2022. 

As of July 2024, nearly 1.1 million employers deferred approximately $133 billion in Social Security taxes for tax year 2020. The vast majority of it, an estimated $131 billion (98%) was paid. However, 167,373 employers had approximately $2 billion (2%) in unpaid deferrals. According to the IRS, as of May 2025, there were approximately 10,000 employers remaining who had not paid their deferral, and the IRS had yet to manually adjust their account which would subject the unpaid amounts to standard collection processes.

The report noted that employers that did not 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. As of July 2024, the IRS assessed an estimated $591 million in penalties and interest on 403,711 tax accounts for employers who failed to pay their deferred Social Security taxes in a timely way.

However, TIGTA found 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 did not post to their tax accounts in a timely manner. The delay in posting these transactions caused the employer to have a delinquent deferral and resulted in the penalty being overstated. 

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 would ensure that the penalties are adjusted on the identified accounts.

"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 under the Coronavirus Aid, Relief and Economic Security (CARES) Act," wrote Lia Colbert, commissioner of the IRS's Small Business/Self-Employed Division, in response to the report. "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."

She noted that the IRS had created a temporary credit equal to the amount of the deferral on employers' accounts in its systems back in 2020, and when an employer doesn't pay or deposit the required amount by the installment due dates, the IRS reverses the credits on their accounts. The IRS has completed 99.5% of the reversals for the first installment and 98.7% of reversals on the second installment. It's working to complete the remainder of reversals for the first and second installments by the end of this year.