A Winning Combination: IRS Clarifies Interaction of Payroll Tax Deferral and Paycheck Protection Program
By Israel Tannenbaum and Ethan Kahn
April 17, 2020
One of the most important provisions of the Coronavirus Aid Relief and Economic Security Act (the “CARES Act”) is the employer payroll tax deferral provision in section 2302.
This allows employers of all sizes to defer the employer’s portion (6.2%) of the Social Security payroll tax on wages paid from March 27, 2020, through December 31, 2020. The amounts deferred must be repaid in equal installments on the “applicable dates,” half by December 31, 2021, and half by December 31, 2022.
There are, however, some limitations to the availability of this benefit. Most notably, the payroll tax deferral provision does not apply if a taxpayer obtains loan forgiveness under a PPP loan.
However, the IRS has recently released updated FAQs which clarify that employers can defer the payroll taxes up to the date of forgiveness, and then continue the deferral of such amounts up to the repayment dates listed in the statute – half by December 31, 2021, and the balance by December 31, 2022.
The IRS clarified in FAQ #4 that employers who received a PPP loan can continue to defer payroll taxes after they receive the loan funds and can continue to do so up to the date they receive a forgiveness decision from their lender. 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.
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,” as noted above.
The IRS clarification provides a unique opportunity for organizations to take advantage of both the PPP and payroll tax deferral until they receive a decision from their lender on loan forgiveness.
As it may take some time until banks are able to process the numerous requests they will receive for the forgiveness program of the PPP, this deferral can be a great way for organizations to obtain some much needed relied during this challenging time.
At Mazars, we understand there is a lot of complex information being disseminated within a short time period. We would be happy to help your organization navigate these new opportunities. Feel free to contact us at any time for assistance.