IRS Releases FAQs for Payroll Tax Deferrals
The IRS issued Frequently Asked Questions (FAQs) that clarifies the interaction between the employer relief provisions in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the loan forgiveness provision for employers that receive a Paycheck Protection Program (PPP) loan.
Section 2302 of the CARES Act permits employers to defer the deposit and payment of the employer’s portion of social security taxes beginning for payroll periods after March 27, 2020 through December 31, 2020.
The FAQs also clarify that an employer who received a PPP loan that has not yet been forgiven can also defer the employer’s share of Social Security taxes though the date when the lender issues a decision to forgive the PPP loan. The employer ceases to be eligible to defer the taxes as of the date of the lender’s decision to forgive the PPP loan.
According to the CARES Act § 1106(g), these forgiveness applications must be submitted after the 8-week “Covered Period” beginning on the loan origination date, but before December 31, 2020. Therefore, PPP loan recipients could continue deferring these payroll taxes through December 31, 2020.
The employer’s share of the Social Security taxes deferred prior to the PPP loan forgiveness must be deposited and paid by the following dates (referred to by the IRS as the “applicable dates”) in order to avoid penalties:
• December 31, 2021: 50% of the deferred amount
• December 31, 2022: the remainder of the deferred amount
The IRS stresses, “in no case will Employers be required to make a special election to be able to defer deposits and payments of these employment taxes.” Therefore, employers may begin deferring these tax deposits immediately. If you use a payroll service provider (such as ADP or Paychex), you may need to contact their customer service department and instruct them to make these deferrals on your next payroll. ADP has a Client Service line set up for this request at 877-603-7171.
Finally, the FAQs explain that an employer is entitled to defer deposit and payment of the employer’s share of payroll taxes before determining whether the employer is entitled to the following credits:
• Paid leave credits (Families First Coronavirus Relief Act §§ 7001 and 7003)
• Employee retention credit (CARES Act §2301)