Employer Payroll Tax Delay Can Help Cash-Strapped Businesses

The employer’s share of Social Security Tax (but not Medicare tax) can be delayed, and paid over two years. Many business clients may not know that the deferral applies to:

• Self-employed individuals
• Recipients of PPP loans, but only until the date of PPP loan forgiveness

The President is about to sign legislation to provide more funding to the PPP loans and SBA’s EIDL. Once we see the details, watch for an eTax Alert in your mailbox.

EMPLOYER PAYROLL TAX DELAY
Employers must withhold social security taxes on employee wages. Self-employed individuals are subject to self-employment tax. Under CARES, taxpayers are allowed to defer paying the 6.2% employer share of the Social Security tax (but not the 1.45% employer share of the Medicare tax) through the end of 2020. The tax is payable over the following two years with half paid by Dec. 31, 2021, and the other half by Dec. 31, 2022.

Deferral Period
The deferral applies to deposits and payments of the employer’s share of Social Security tax that would otherwise be required to be made during the period beginning on Mar.7, 2020, and ending Dec. 31, 2020. (Section 2302 of the CARES Act calls this period the “payroll tax deferral period.”)

Applicable Dates
The payment for applicable employment taxes between Mar. 27, 2020, and Jan. 31, 2021, won’t be due before the applicable date. The applicable date is:

1. Dec. 31, 2021, for 50% of employment and self-employment taxes
2. Dec. 31, 2022, for the remaining 50% of those amounts.

An employer is treated as timely making all deposits of applicable employment taxes required if all such deposits are made by the applicable date.

Self-employed Individuals
Self-employed individuals may defer the payment of 50% of the self-employment tax on net earnings for the period beginning on Mar. 27, 2020, and ending Dec. 31, 2020. The deferred payment amounts are due on Dec. 31, 2021, for 50% of employment and self-employment taxes, and Dec. 31, 2022, for the remaining 50% of those amounts.

Paycheck Protection Loan Coordination
Employers who have received a PPP loan may defer deposit and payment of the employer’s share of Social Security tax that otherwise would be required to be made beginning on Mar. 27, 2020, through the date the lender issues a decision to forgive the loan, without incurring 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 on Dec. 31, 2021, for 50% of employment and self-employment taxes, and Dec. 31, 2022, for the remaining 50% of those amounts.

Resources
Read more about Deferral of Payroll Tax Deposits at IRS FAQs