The Coronavirus Aid, Relief, and Economic Security (CARES) Act allows eligible employers to delay payments of employer payroll taxes for the duration of 2020. However, employers that receive an SBA Paycheck Protection Program 7(a) loan are ineligible for this deferral if and when that loan is forgiven. As a result, it was unclear whether employers applying for the Paycheck Protection Program loan were eligible to also begin deferring their payroll taxes. Additionally, if such employers were already deferring their payroll taxes, at what point would they be required catch up on those deposits?
In response to these questions, on April 10, 2020, the IRS issued FAQs related to the deferral of employment tax deposits and payments through December 31, 2020. Below is a summary of key points.
Deferred Payroll Tax Payments
Employers and self-employed individuals may delay payments of their share of Social Security payroll taxes (the 6.2% portion of employer FICA and 50% of SECA tax). The deferral applies to the:
- Employer’s deposit and payment requirements, and
- Estimated taxes due by a self-employed person on an individual return due from March 27, 2020, through December 31, 2020.
Employers currently deferring their payroll deposits will report those on Form 941, Employer's QUARTERLY Federal Tax Return, which will be revised for the second calendar quarter of 2020 for payments due April through June 2020.
For amounts deferred during the first quarter reporting period and due April 30, the IRS will be issuing special instructions prior to the deadline. Employers are not required to make a special election to defer these deposits and payments.
The deferred taxes must be remitted over a two year period, with half due by December 31, 2021, and the remainder due on December 31, 2022.
Paycheck Protection Program (7a) Loan Limitation
Employers that receive a loan under this program may not defer the deposit and payment of their share of Social Security tax due after they receive a decision from the lender that the loan was forgiven.
However, employers who have received a Paycheck Protection Program loan, but whose loan has not yet been forgiven, may defer deposit and payment of their share of Social Security tax due March 27, 2020, and through the date the lender issues a decision to forgive the loan. Following this guidance, the employer will not incur penalties for failure to deposit and pay.
Once an employer receives word that the loan is forgiven, the employer is no longer eligible to defer any future deposits. The amount of any Social Security tax deposits and payments deferred prior to the date the loan is forgiven continues to be deferred and will be due pursuant to the applicable dates outlined in the CARES Act (50% due on December 31, 2021; and the remaining amount due on December 31, 2022).
Timing is Key
Under the Paycheck Protection Program, employers must apply for loan forgiveness. Therefore, the timing of the application for forgiveness will impact the employer’s deferral period. Currently, there are no regulations providing the required date employers must apply for forgiveness. Absent further guidance, employers may decide to defer their application for forgiveness to maximize their deferral of Social Security taxes.
All in all, the clarifying FAQs are welcome guidance for many employers who have been deferring their employer payroll taxes and are applying or have already received a Paycheck Protection Program loan. We anticipate additional regulations and implementation guidance from the Treasury, IRS and Department of Labor over the next few weeks.
>> Read the full IRS FAQ
Contact Cynthia Pedersen at firstname.lastname@example.org or a member of your service team to discuss this topic further.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.