One of the less publicized aspects of the recent Coronavirus Aid, Relief, and Economic Security Act (CARES Act) legislation is the payroll tax deferral program, which allows employers to improve their 2020 cash flow through a reduction in the amount of payroll taxes that must be remitted with their 2020 payroll tax filings. The program allows employers to defer payments of the 6.2% employer’s share of Social Security taxes required to be made between March 27, 2020, and December 31, 2020. According to Internal Revenue Service (IRS) guidance, employers will not be required to make any special election for these deferrals, and no failure to deposit or failure to pay penalties will apply to amounts deferred. IRS Form 941, Employer’s Quarterly Federal Tax Return, will be revised for the second calendar quarter of 2020 (April – June 2020) to facilitate making these deferrals. Any payroll taxes deferred must be paid back in two equal installments–one on December 31, 2021, and the other on December 31, 2022.
Questions to Consider:
How does the deferral interact with the paid leave credits under the Families First Coronavirus Response Act (FFCRA)?
According to IRS guidance, an employer should calculate the deferral amount prior to determining its entitlement to the paid leave credits under Sections 7001 or 7003 of FFCRA, or the employee retention credit under Section 2301 of the CARES Act, and prior to determining the amount of (a) employment tax deposits that it may retain in anticipation of these credits, (b) any advance payments of these credits, or (c) any refunds with respect to these credits.
An employer received a Payroll Protection Program loan—does that impact its ability to defer some portion of its share of Social Security taxes?
Recipients of Payroll Protection Program (PPP) loan proceeds can still defer the employer’s share of Social Security taxes up until the Small Business Administration determines the loan forgiveness amount available to the taxpayer. PYA’s related article provides more information about the interaction between the PPP loan program and the payroll tax deferral.
Should you have questions about the deferral of payroll taxes or need additional COVID-19 guidance, visit PYA’s COVID-19 hub, or contact one of our PYA executives below at (800) 270-9629.