Guidance on Deferral of Payroll Tax Deposits
Published April 12, 2020
The Coronavirus, Aid, Relief and Economic Security Act (CARES Act) allows employers to defer the deposit and payment of the employer’s share of social security taxes and self-employed individuals to defer payment of certain self-employment taxes. The effective date of the deferral is for deposits that would have been required to have been made beginning March 27, 2020.
DEFERRAL and REPORTING
The deferral allows you to defer the 6.2% of the employer Social Security match that would have been due between March 27, 2020 and December 31, 2020 until December 31, 2021 (50%) and December 31, 2022 (50%).
The Second quarter Form 941 will be revised to properly report. Instructions for the form will be coming soon.
All employers are eligible for this deferral. Employers who have 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 that otherwise would be required to be made up until the date the lender issues a decision to forgive the loan in accordance with paragraph (g) of section 1106 of the CARES Act. The employer will not incur any failure to deposit and failure to pay penalties. 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 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 is forgiven continues to be deferred and will be due 50% on December 31, 2021 and 50% on December 31, 2022.
CAN YOU DEFER DEPOSITS OF THE EMPLOYER’S SHARE OF SOCIAL SECURITY TAX IN ADDITION TO CREDITS UNDER FFCRA’S LEAVE CREDITS AND CARES RETENTION CREDIT?
Yes, the ability to defer deposit and payment of the employer’s share of social security tax under section 2302 of the CARES Act applies to all employers, not just employers entitled to paid leave credits and employee retention credits. An employer is entitled to defer deposit and payment of the employer’s share of social security tax prior to determining whether the employer is entitled 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 employment tax deposits that it may retain in anticipation of these credits, the amount of any advance payments of these credits, or the amount of any refunds with respect to these credits.
SELF EMPLOYED INDIVIDUALS ELIGIBLE TO DEFER PAYMENT OF SELF-EMPLOYMENT TAXES ON EARNINGS FROM SELF-EMPLOYMENT INCOME?
Yes. Self-employed individuals may defer the payment of 50 percent of the social security tax on net earnings from self-employment income imposed under section 1401(a) of the Code for the period beginning on March 27, 2020 and ending December 31, 2020.
ARE THERE ANY PENALTIES FOR NOT MAKING THE REQUIRED DEPOSIT?
No. Notice 2020-22 provides relief from the failure to deposit penalty under section 6656 of the Code for not making deposits of employment taxes, including taxes withheld from employees, in anticipation of the FFCRA paid leave credits and the CARES Act employee retention credit. For any taxable year that includes any part of the payroll tax deferral period, 50 percent of the social security tax imposed on net earnings from self-employment income during that payroll tax deferral period is not used to calculate the installments of estimated tax due under section 6654 of the Code.
We’re Here to Help
MCM CPAs & Advisors can help advise you through these important changes. For more information, contact firstname.lastname@example.org and a member of MCM CPAs & Advisors COVID-19 Solutions Group will be in touch.