As all Americans and, in particular, small business owners continue to understand the evolving CARES Act, the IRS released clarifications regarding the terms of payroll tax deferrals within the Paycheck Protection Program (PPP).
It was previously believed that taxpayers who were taking a covered loan under the PPP/CARES Act were not eligible for deferral of the social security tax. However, on April 15, 2020, the IRS clarified that you can, in fact, defer the employer portion (6.2%) of the payroll tax until the loan is actually forgiven.
The IRS fact sheet states the following:
- Confirmation that employers may defer the deposit and payment of the employer’s portion of SS taxes during the period beginning on March 27, 2020 and ending December 31, 2020 without incurring failure to deposit and failure to pay penalties.
- Confirmation that there is no size limit (e.g., # of employees) on employers using this deferral feature or any requirement to do anything else (e.g., provision of leave or additional pay) to claim this credit.
- Once an employer receives a decision from its lender that its PPP loan is forgiven, the employer is no longer eligible to defer deposit and payment of the employer’s share of SS tax due after that date.
- The deferred deposits of the employer’s share of the SS tax must be deposited:
- On December 31, 2021 (50% of the deferred amount); and
- On December 31, 2022 (the remaining 50% of the deferred amount).
If you have any questions about this or anything else, please feel free to reach out to us to discuss.
To read more about the clarifications, visit: https://www.irs.gov/newsroom/deferral-of-employment-tax-deposits-and-payments-through-december-31-2020