Payroll Tax Deferral and the Paycheck Protection Program

Payroll Tax Deferral and the Paycheck Protection Program 2560 1707 Balance Point Team

The Families First Coronavirus Relief Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Securities (CARES) Act created new tax credits that will reduce the payroll tax obligations of certain businesses. Ambiguous language left employers wondering whether they would be eligible for Payroll Protection Program (PPP) loan forgiveness if payroll taxes were deferred, or if they could defer payroll taxes after the PPP loans were forgiven.

On April 10, 2020 the Internal Revenue Service (IRS) provided much-needed clarity in the form of an FAQ that addresses payroll tax deferral.

The Highlights

The FAQ makes it clear that a business who has received a PPP loan, but whose loan has not yet been forgiven, may defer deposit and payment of the employer’s share of Social Security tax until a decision whether or not to forgive the loan has been reached by the lender, without incurring failure to deposit and failure to pay penalties.

Once the business receives notice that the loan has been forgiven, the employer is no longer able 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 was forgiven continues to be deferred and will be due on the “applicable dates.”

The deferral applies to deposits and payments of the employer’s share of Social Security tax that would otherwise be required to be made during the period beginning on March 27, 2020, and ending December 31, 2020.

The deferred deposits of the employer’s share of Social Security tax must be deposited by the following dates:

  1. On December 31, 2021, 50% of the deferred amount; and
  2. On December 31, 2022, the remaining amount

You may read the entire IRS FAQ here.

Questions?

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