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Payroll Tax Deferrals Now Available Under the CARES Act

4/22/20 – Victor Evans

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How Do They Coincide with the PPP and Other Stimulus Credits?

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) represents the third phase of Congress’s legislative efforts to address the financial and health care crisis resulting from the coronavirus (COVID-19) pandemic. The CARES Act includes numerous provisions intended to help affected businesses, including payroll tax deferral.

The new law allows employers to delay their payment of the employer share (6.2% of wages) of the Social Security payroll tax beginning March 27th, 2020 through December 31st, 2020. Taxpayers can pay the tax over the next two years, with the first half due by December 31, 2021, and the second half due by December 31, 2022. Self-employed individuals receive similar relief under the law. The IRS recently released a comprehensive FAQ, which can be found here. Key components of the FAQ related to the payroll tax deferrals under the CARES Act, specifically as they relate to the Paycheck Protection Program (PPP) and credits resulting from the employee retention credit and credits under the Families First Coronavirus Response Act (FFCRA), are highlighted below.

Which employers may defer deposit and payment of the employer's share of Social Security tax (or railroad retirement tax) without incurring failure to deposit and failure to pay penalties?
All employers may defer the deposit and payment of the employer’s share of Social Security tax (or railroad retirement tax). However, employers that receive a loan under the Small Business Administration Act, as provided in section 1102 of the CARES Act (the PPP), may not defer the deposit and payment of the employer’s share of Social Security tax due after the employer receives a decision from the lender that the PPP loan is forgiven under the CARES Act. 

Can an employer that has applied for and received a PPP loan that is not yet forgiven defer deposit and payment of the employer's share of Social Security tax without incurring failure to deposit and failure to pay penalties?
Employers who have received a PPP loan may defer deposit and payment of the employer's share of Social Security tax that otherwise would be required to be made beginning on March 27, 2020, through the date the lender issues a decision to forgive the loan in accordance with paragraph (g) of section 1106 of the CARES Act, without incurring failure to deposit and failure to pay penalties. Once an employer receives a decision from its lender that its PPP loan is forgiven, the employer is no longer eligible to defer deposit and payment of the employer's share of Social Security tax due after that date. However, the amount of the deposit and payment of the employer's share of Social Security tax that was deferred through the date that the PPP loan is forgiven continues to be deferred and will be due on the "applicable dates."

Additionally, employers are able to defer deposits of the employer's share of Social Security tax in addition to the relief provided for deposit of employment taxes in anticipation of the FFCRA paid leave credits and the CARES Act employee retention credit. Employers who are eligible to claim refundable paid leave tax credits (or the employee retention credit) are able to defer their deposit and payment of the employer’s share of Social Security tax prior to determining the amount of employment tax deposits that they may retain in anticipation of these credits, the amount of any advance payments of these credits, or the amount of any refunds with respect to these credits.

For any questions related to payroll tax deferrals or tax guidance in general, please contact Victor Evans at vevans@vlcpa.com or 800.887.0437.