IRS Issues Guidance on Payroll Tax Deferral Including Clarifications Related to Interactions with Other CARES Act Provisions
By Ryan Vaughan and Jesse Sirotkin
April 14, 2020
The Internal Revenue Service issued Frequently Asked Questions(“FAQs”) clarifying an employer’s ability to defer the deposit and payment of the employer’s social security taxes provided under section 2302 of the Coronavirus, Aid, Relief and Economic Security (“CARES”) Act. The FAQs can be found in the link below.
Section 2302 of the CARES Act “Delay of Payment of Employer Payroll Taxes” allows employers and self-employed individuals to defer payment of the employer’s share of the Social Security tax with respect to their employees and a portion of the self-employment taxes from March 27, 2020 through December 31, 2020. The deferred employment tax is required to be paid over the following two years, with half of the deferred amount required to be paid by December 31, 2021 and the other half by December 31, 2022. The provision, however, disallows deferral for employers who have Payroll Protection Program (“PPP”) loans forgiven. This restriction resulted in uncertainty for employers who have, or plan to apply for the PPP, but don’t know whether the PPP loan will be granted or ultimately forgiven.
The FAQs address this concern explaining that employers who have received a PPP loan, but whose loan has not yet been forgiven, may defer deposit and payment of the employer’s share of social security tax beginning on March 27, 2020, through the date the lender issues a decision to forgive the loan. Once an employer receives a decision from the lender that its PPP loan is forgiven, the employer may not continue to defer the deposit and payment of the employer’s share of social security tax due. However, the employer’s share of social security tax that was deferred through the date that the PPP loan is forgiven continues to be deferred, meaning that half of such deferred amounts will be due on December 31, 2021 and the other half on December 31, 2022. The IRS has not yet indicated exactly how much loan forgiveness will be required before it shuts off the payroll tax deferral.
Additionally, the FAQs confirm a taxpayer’s ability to defer payroll tax amounts and claim the payroll tax credits under the Families First Coronavirus Relief Act (“FFCRA”) and CARES Act. An employer is entitled to defer deposit and payment of the employer’s share of social security tax prior to determining whether the employer is entitled to the paid leave credits under sections 7001 or 7003 of FFCRA or the employee retention credit under section 2301 of the CARES Act, and prior to determining the amount of employment tax deposits that it may retain in anticipation of these credits, the amount of any advance payments of these credits, or the amount of any refunds with respect to these credits.
The deferred payroll tax amounts for the first quarter of 2020 are reported on the employer’s second quarter, 2020 Form 941. The IRS will be providing instructions on how to report the deferral on Form 941, but explained that no special election will be required to take the deferral.
Please contact your Mazars USA LLP professional for additional information.