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Deferral credit for certain Schedule SE files

tscott1205
Level 4

The program automatically defers 1/2 of the SE tax. Why would I want to do this if the taxpayer must repay the tax in the future. Can I prevent the deferral. If it is a deferral why is it listed as a credit?

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25 Comments 25
IRonMaN
Level 15

I haven't looked at the form myself yet, but other posts have mentioned entering in a zero for the deferral to get it to fly the way you want.


Ukraine - hang in there
tscott1205
Level 4

The question is misleading..."Enter the portion of line 3 that can be attributed to March 27,2020 through December 31, 2020"

 

The program should ask a second question ... do you want to defer this tax to future?

TaxGuyBill
Level 15

@tscott1205 wrote:

The question is misleading..."Enter the portion of line 3 that can be attributed to March 27,2020 through December 31, 2020"

 

The program should ask a second question ... do you want to defer this tax to future?


 

For a property Schedule SE, that question is correct.

I agree, it would be nice to actually have a 'required field' asking if we WANT to defer or not.  But if you to the 1040 Worksheet, then Line 12 of Schedule 3 (where the deferral happens), you can enter zero in the worksheet to eliminate the deferral.

 

abctax55
Level 15

property Schedule SE ????   methinks a typo 🤣


#StandWithUkraine
TaxGuyBill
Level 15

LOL.  Thanks, I'll fix it.   😁

rpackard064
Level 1

The programmers should have absolutely added a line for an opportunity to "opt-out" of the SE deferral (part of Section 2302 of the Cares Act)---I believe that Intuit made a huge mistake by "automatically" opting the client return into the SE deferral process---at the very least, this impactful change should have been reflected on the the "client letter" under the federal summary, indicating that "you have elected to defer all or a portion of your 2020 Social Securities taxes owed and you have until 12/31/2021 to make all relevant payments."----I am really upset by this decision---I just received a copy of an IRS letter that a client forwarded to me that indicated that she had elected to defer $3058 of social security taxes---she is self-employed and owes both the employer and the employee portion---this is not going to be a great upcoming conversation with a client who I gave the incorrect impression that all of her taxes had been paid---sure wish Intuit had communicated to look out for this "automatic" opt-in---NOT COOL!

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TaxGuyBill
Level 15

Although in my opinion is isn't in a great spot (the 1040 Wks, right above the line for the deferral), there *IS* a line in ProSeries to indicate how much SE tax to defer.

ProSeries did force you to enter the amount of profit from March 27th to December 31st on Schedule SE, under a section clearly marked as deferral of SE taxes, so you should have been aware of what it was doing.

Unfortunately, it was a mistake on your part that you missed that Schedule 3 showed the deferral, and that the return was $3000+ short on tax.

 

1.jpg 2.jpg

 

rpackard064
Level 1

Thanks for the insight, but you missed my point---this "deferral" opportunity, was only because of the Cares Act, and has never been a part of the SE process---such a large change should have been an "option" to apply, not a default---where on the "client letter" does it state that the client is ALSO responsible for the deferral amount?---that would have immediately clued me in of the change and an opportunity to correct it.

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TaxGuyBill
Level 15

I agree that it could have been done better.  However, MY point is that YOU missed a very significant thing that SHOULD have been somewhat obvious because of the required input and the large reduction of tax due.

rpackard064
Level 1

I don't disagree that it was MY mistake for the oversight---I'm saying, where in any correspondence to the client (other than Schedule 3) do we clearly indicate to the client that, 'oh by the way, you owe $x dollars by 12/31/2021 and $Y by 12/31/2022'?

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abctax55
Level 15

"...Why... "

1) Time value of money

2) Underpayment penalty considerations (possibly).

As to the "how to", I don't use PS.  But numerous threads on this indicate that entering a "0" works.  

AND, the deferral IS optional.


#StandWithUkraine
tscott1205
Level 4

🤔

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IRonMaN
Level 15

Or, instead of the second question, just enter zero for the first question.  Sometimes you will drive yourself bonkers trying to reason with the software.  So as long as you get the results you want it doesn't pay to try and argue with it.


Ukraine - hang in there
tscott1205
Level 4

The program question allows you to think there is a possibility that the deferral will be forgiven. I never thought the PPP loans would be forgiven

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abctax55
Level 15

S/E tax deferral & PPP loans are different critters

AND

PPP loans are (for almost all those that received them) forgiven/forgivable.... if used for acceptable purposes. 


#StandWithUkraine
tscott1205
Level 4

👍

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deannas
Level 2

Plus if a client has paid estimates then they are refunded the amount of SE taxes that they paid that could be deferred.  

Then when you print the tax return there are no instructions about owing or how to pay the additional SE taxes due by the end of the year.  This is a serious issue that needs to be fixed.

Obviously for some clients that paid all I can put 0 on the SE worksheet as a work around.  But for clients that couldn't pay all of it I don't want them to be penalized so I need this form. And I need ProSeries to tell them how much they owe and how to make those payments in 2020 & 2021.

TaxGuyBill
Level 15

@deannas wrote:

But for clients that couldn't pay all of it I don't want them to be penalized so I need this form.

And I need ProSeries to tell them how much they owe and how to make those payments in 2020 & 2021.


 

(1) What "form" are you talking about?

(2) The IRS hasn't even given details, so ProSeries certainly can't give directions.  You just need to tell the client to be sure to make the payment by December 31st.  If the IRS gives direction that would affect the way your client makes that payment, you would need to contact your client after that direction is given.

deannas
Level 2

I was referring to not wanting to enter 0 on Form SE line 18 as a work around.  But I now see that on the 1040/1040SR Wks on Schedule 3 there is a worksheet called "Deferral for Certain Schedule H or SE Filers" where you can enter on line 11 of the worksheet the amount you want to defer on line 12e of Schedule 3 which prevents a refund of SE taxes paid.

The biggest issue now is that the software will automatically refund SE taxes deferred.  But the IRS says you cannot have those taxes refunded:https://www.irs.gov/newsroom/deferral-of-employment-tax-deposits-and-payments-through-december-31-20...

30. Is a self-employed individual who defers 50 percent of the Social Security tax on net earnings from self-employment income, or a household employer that defers the employer's share of Social Security tax under section 2302 of the CARES Act, eligible for a refund of the deferred amount of tax at the time the taxpayer files its Form 1040, Individual Tax Return? (added July 30, 2020)

Generally, no. A taxpayer who has deferred his or her payment of the employer's share of Social Security tax or 50% of the Social Security tax on net earnings from self-employment under section 2302 of the CARES Act is not eligible for a refund due to the deferral because the deferral amount is a deferral of payment, not a deferral of liability. Therefore, the deferral itself does not result in an overpayment of taxes reported on Form 1040. However, if a household employer is eligible for advanceable paid leave credits under the FFCRA and reports those credits on Schedule H, Form 1040, the taxpayer may receive a refund of the paid leave credits even while deferring the employer's share of Social Security tax. This does not apply to credits for sick leave and family leave equivalent amounts for self-employed individuals.

qbteachmt
Level 15

"Plus if a client has paid estimates then they are refunded the amount of SE taxes that they paid that could be deferred."

Here's why that isn't the case:

An employer that deferred kept the money and did not make a deposit. But, if they made a deposit and then wanted to defer, they were not able to get back money they paid. For the Individual, the money paid is part of their entire Tax payments, the same as Estimated or withholding. You don't "get it back." Once the tax return is completed, you get back any refund you are due, as usual. Not the deferred amount. It's not considered a Refundable Credit. It's simply a delay for not needing to pay what you owe until a later date.

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RTS
Level 2

I had several clients where we tried to get a refund for deferral. IRS did not recognize the credit since the clients have an overall refund. So if the client has a refund, self employee 50% SE can not be deferred. 

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qbteachmt
Level 15

It's not a Creditable Refund; it's a deferral for something not yet paid, so it isn't also considered past due.

It's part of parity for the Self-employed to be treated as employers are treated for the Form 7200 provision.

"Employers that have already deposited all or any portion of the employer's share of Social Security tax during the payroll tax deferral period may not subsequently defer payment of the tax already deposited and generate an overpayment of tax"

"Employers that have already paid the employer's share of Social Security tax on wages during the payroll tax deferral period may not subsequently defer the payment of the tax"

Remember that SE = both an employer and an employee for purposes of the Social Security tax.

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TaxGuyBill
Level 15

@deannas wrote:

The biggest issue now is that the software will automatically refund SE taxes deferred.  But the IRS says you cannot have those taxes refunded:https://www.irs.gov/newsroom/deferral-of-employment-tax-deposits-and-payments-through-december-31-20...

 

Yeah, I surprised the IRS has not issued more guidance in this matter.

From my perspective, I would argue that any Estimated Taxes were for INCOME tax (and maybe the non-deferred portion of SE tax).  Therefore, the taxpayer is not being "refunded" the deferred amount.

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cookstown1964
Level 1

What is the deferral period for SE filers i.e. when must this be repaid? 

 

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qbteachmt
Level 15

@cookstown1964 

"What is the deferral period for SE filers i.e. when must this be repaid?"

The IRS has that info, the links are in this topic. Here they are, again:

https://www.irs.gov/newsroom/deferral-of-employment-tax-deposits-and-payments-through-december-31-20...

You can find self-employed info in that topic.

Example:

23. What are the applicable dates when deferred payment amounts of 50 percent of the Social Security tax imposed on self-employment income must be paid?

The deferred payment amounts must be paid by the "applicable dates" as described in What are the applicable dates by which deferred deposits of the employer's share of Social Security ...

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