Available to All Employers
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, allows for a payroll tax deferral of the employer share of Social Security tax that would otherwise be due from March 27 until December 31, 2020. Initially, this deferral was not available to those businesses taking advantage of the Paycheck Protection Program (PPP) Loans.
However, the IRS has now updated their guidance and the deferral is available for businesses taking the PPP Loan for the period before the loan is forgiven. Employers who have received the PPP Loan, but not yet had the loan forgiven, may defer deposit and payment of the employer’s share of social security tax that otherwise would be required to be made.
The deferral period begins on March 27, 2020 and ends on the date the lender issues a decision to forgive the loan. Once the employer receives notice the PPP Loan is forgiven, the payroll tax deposit is no longer able to be deferred. The total deferred amount would be paid 50 percent on December 31, 2021 and 50 percent on December 31, 2022, with no interest or penalties assessed.
The IRS has not yet issued instructions for completing first quarter payroll tax returns related to the deferral for the period March 27-March 31, 2020, but has said the second quarter payroll tax return will be revised.
This is a deferral of payroll tax, not a forgiveness of payroll tax. The amounts will be due in December 2021 and December 2022. The amounts will be subject to substantial trust fund recovery penalties (TFRP) and personal liability for business owners if they are not paid by the December 2021 and 2022 due dates.
Determining Deferral Amount
The typical payroll tax deposit comprises of five components, but not all components are eligible for deferral. Below is an example of how to determine the eligible portion.
In the example above, the only portion of the tax deposit that can be deferred is the employer social security* portion, in the amount of $1,240. The remaining balance of $3,820 is required to be paid timely according to the employer depository schedule.
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