The Coronavirus, Aid, Relief and Economic Security Act (CARES Act) permits 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, that otherwise would be due between March 27, 2020, and Dec. 31, 2020.

On April 10, 2020, the IRS issued new guidance on the program to offer businesses much needed clarification regarding the payroll tax deferrals. The guidance includes the following:

Employers may defer paying certain taxes penalty-free, including Paycheck Protection Program recipients

Employers may defer their deposit and portion of social security taxes and certain railroad retirement taxes without penalty. The penalty-free deferral applies to deposits and payments of the employer’s share of social security tax that would otherwise be required to be made between March 27, 2020, and ending December 31, 2020.

Recipients that benefit from the Paycheck Protection Program who receive a decision from its lender that the loan is forgiven are no longer eligible to defer these taxes after the forgiveness date. For payments deferred through the forgiveness date, an employer may continue deferral until the end of 2021 and 2022 without incurring penalties for failure to deposit and failure to pay.

The deferred deposits of the employer’s share of social security tax must be deposited by the following dates to avoid penalties:

  • On December 31, 2021, 50 percent of the deferred amount; and
  • On December 31, 2022, the remaining amount.

Further information will be forthcoming to instruct employers on how to reflect the deferred deposits and payments due on or after March 27, 2020, for the first quarter of 2020 (January – March 2020).  In no case will Employers be required to make a special election to be able to defer deposits and payments of these employment taxes.

All employers are eligible

All employers are eligible for the deferral program. Self-employed individuals, like employers who pay social security taxes, may defer payment of 50% of the social security tax on net earnings from self-employment income. However, employers that receive a Paycheck Protection Program loan become ineligible to continue deferring tax payments after receiving notice that the loan is forgiven. The CARES Act states that taxpayers who have had a loan forgiven under the U.S. Treasury Program Management Authority established in Section 1109 of the CARES Act also are ineligible to participate.

Your BMF Advisor is ready to answer any questions you have on the social security tax deferral program or additional IRS guidance.

 

Visit our COVID-19 Resource Center for additional information and resources for you and your business.

About the Authors

Dale A. Ruther
CPA, CIT, CDS, CCIFP
Partner, Taxation Services
James E. Merklin
CPA/CFF, CFE, CGMA, MAcc
Partner, Assurance and Advisory

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