Section 2302 of the Coronavirus, Aid, Relief and Economic Security (CARES) Act provides that employers may defer the deposit and payment of the employer's portion of social security taxes and certain railroad retirement taxes beginning on
March 27, 2020 through Dec. 31, 2020 or the ’payroll tax deferral period.’
Recently, the IRS has published updated guidance to address specific issues and frequently asked questions related to the payroll tax deferral.
All employers may defer employer portion of social security taxes EXCEPT employers who have been issued a Payroll Protection Loan that has been forgiven
All employers may defer the deposit and payment of the employer's share of social security tax, regardless of size. However, special rules applies to employer who receive a Paycheck Protection Program (PPP) loan in accordance with paragraph (g) of section 1106 of the CARES Act.
Employers with Payroll Protection Loans not yet forgiven are eligible to defer employer share of social security taxes
The FAQ now clarifies that an employer that has applied for and received a PPP loan that is not yet forgiven may defer the deposit and payment of the employer's share of social security tax without incurring failure to deposit and failure to pay penalties. However, 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.
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 on the applicable dates discussed below.
Form 941 revised
Form 941, Employer's Quarterly Federal Tax Return, will be revised for the second calendar quarter of 2020 (April - June, 2020). Additional guidance will be provided in the near future to instruct employers how to reflect the deferred deposits and payments otherwise due on or after March 27, 2020 for the first quarter of 2020 (January – March, 2020). Employers will not be required to make a special election to be able to defer deposits and payments of these employment taxes.
Families First Coronavirus Relief Act (FFCRA) paid leave credits and the CARES Act employee retention credit
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 that is eligible to claim refundable paid leave tax credits or the employee retention credit may defer their deposit and payment of the employer's share of social security tax prior to determining the amount of employment tax deposits that it may retain in anticipation of the Families First Coronavirus Relief Act (FFCRA) paid leave credits (under section 7001 or 7003 of FFCRA), the CARES Act employee retention credit (section 2301 of the CARES act), the amount of any advance payments of these credits or the amount of any refunds with respect to these credits.
Applicable dates by which deferred deposits of the employer's share of social security tax must be deposited to be treated as timely and avoid a failure to deposit penalty under section 6651 or 6656 of the Internal Revenue Code (IRC)
The deferred deposits of the employer's share of social security tax must be deposited by the following dates to be treated as timely (and avoid a failure to deposit penalty):
- On Dec. 31, 2021, 50% of the deferred amount; and
- On Dec. 31, 2022, the remaining amount.
Self-employed individuals are eligible to defer payment of self-employment tax on net earnings from self-employment income
Self-employed individuals may defer the payment of 50% of the social security tax on net earnings from self-employment income imposed under section 1401(a) of the IRC during the payroll tax deferral period.
For Self-employed individuals, there is no penalty for failure to make estimated tax payments for any taxable year that includes any part of the payroll tax deferral period. During this period, 50% of the social security tax imposed on net earnings from self-employment income is not used to calculate the installments of estimated tax due under section 6654 of the Code.
The deferred payment amounts of 50% of the social security tax imposed on self-employment income must be paid on the applicable dates as described above.