IRS Issues FAQs on Payroll Tax Deferral: PPP Recipients Partially Eligible for Deferral Benefits
The Coronavirus, Aid, Relief and Economic Security Act (CARES Act) allows employers to defer the deposit and payment of the employer's share of Social Security taxes. Employers may defer payment of their share of Social Security taxes for the period beginning on March 27, 2020 and ending December 31, 2020. In general, 50% of the deferred amount must be deposited and paid by December 31, 2021 and the balance must be deposited and paid by December 31, 2022. On April 10, 2020, the Internal Revenue Service (IRS) published FAQs regarding the deferral of the deposit and payment of these payroll taxes. The FAQs are available here.
Of particular note, the FAQs confirm that an employer who has received a CARES Act Paycheck Protection Program (PPP) loan may defer the deposit and payment of its share of Social Security taxes without penalty through the date the lender issues a decision to forgive the loan. In addition, the deferred amount from March 27, 2020 through the date that the PPP loan is forgiven continues to be deferred with 50% of the deferred amount being due on December 31, 2021 and the balance being due on December 31, 2022.
The FAQs also address the following important topics:
- Employers are not required to make any special election to defer the deposit and payment of their share of Social Security taxes.
- IRS Form 941, Employer’s Quarterly Federal Tax Return, will be revised for the quarter ending June 30, 2020 to allow employers to reflect the deferred deposits and payments.
- The IRS expects to issue guidance in the near future to employers on how to reflect deferred deposits and payments for the period beginning on March 27, 2020 and ending on March 31, 2020.
- The ability to defer deposits and payments of the employer’s share of Social Security taxes is in addition to the relief granted under IRS Notice 2020-22 which allows applicable employment taxes to be retained in anticipation of Families First Coronavirus Relief Act (FFCRA) paid leave credits and CARES Act employee retention credits.
- Employers are entitled to defer the deposit and payment of their share of Social Security taxes prior to determining eligibility to receive FFCRA paid leave credits and CARES Act employee retention credits.
- There are no failure-to-deposit or failure-to-pay penalties if 50% of the deferred amount is paid by December 31, 2021 and the balance is paid by December 31, 2022. The deferred amount must be deposited and paid by these dates to avoid failure-to-deposit and failure-to-pay penalties.
Self-employed individuals are entitled to similar relief with respect to 50% of the Social Security tax on net-earnings from self-employment.
We are continuing to monitor changes and developments under federal and state tax law. If you have questions or concerns, please contact a member of the Koley Jessen Tax Practice Group.
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