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Deferring Social Security Taxes: FAQs for Employers During the Coronavirus

Posted by Concannon Miller on Thu, Apr 16, 2020

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Deferring Social Security Taxes: FAQs for Employers During the CoronavirusThere's a CARES benefit that’s not getting as much press as PPP but may be a useful liquidity tool for business owners battling through this crisis.

No matter the size of your business, the CARES Act allows employers to defer the payment of the employer’s share of social security taxes that would otherwise be due from 3/27/20 through 12/31/20 without penalty or interest charges.

These FAQs from the IRS lay out the rules for employers on which portion of the social security taxes they can defer, when they have to be paid, and if and when they can still take tax deductions on them. And if you received a PPP loan from the SBA, read more in the FAQ’s about how this benefit can apply to you.

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FAQS  from the IRS:
Deferring Social Security Taxes

What deposits and payments of employment taxes are employers entitled to defer? Employers may defer the deposit and payment of the employer's portion of social security taxes. Employers that received a Paycheck Protection Program loan may not defer the deposit and payment of the employer's share of social security tax that is otherwise due after the employer receives a decision from the lender that the loan was forgiven. (Get more details on the PPP rules below.) 
Is the deferral based on 7.65% or 6.2%? Does it include the Medicare part? The payroll tax deferral is only for the employer’s portion of the social security tax, so just the 6.2%.
Will the employer still get a tax deduction on the deferral? Guidance is not out on this question yet but our best guess is accrual basis companies would take deduction when cost incurred (so currently) and cash basis companies would take the deduction when paid. Check back with us on this as more information is released.
When can employers begin deferring deposit and payment of the employer's share of social security tax without incurring failure to deposit and failure to pay penalties? 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 March 27, 2020, and ending December 31, 2020.
Which employers may defer deposit and payment of the employer's share of social security tax without incurring failure to deposit and failure to pay penalties? All employers may defer the deposit and payment of the employer's share of social security tax. However, employers that receive a PPP loan may not defer the deposit and payment of the employer's share of social security tax due on or after the date that the PPP loan is forgiven under the CARES Act. (Get more details on the PPP rules below.) 
Can an employer that has applied for and received a PPP loan that is not yet forgiven defer deposit and payment of the employer's share of social security tax without incurring failure to deposit and failure to pay penalties?

Yes. 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 that otherwise would be required to be made beginning on March 27, 2020, through the date the lender issues a decision to forgive the loan.

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 the "applicable dates," as described below.

Is this ability to defer deposits of the employer's share of social security tax in addition to the relief provided in Notice 2020-22 for deposit of employment taxes in anticipation of the Families First Coronavirus Relief Act (FFCRA) paid leave credits and the CARES Act employee retention credit?

Yes. Notice 2020-22 provides relief from the failure to deposit penalty not making deposits of employment taxes, including taxes withheld from employees, in anticipation of the 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 in the CARES Act applies to all employers, not just employers entitled to paid leave credits and employee retention credits. (But see the limit described above for employers that have a PPP loan forgiven.)

Can an employer that is eligible to claim refundable paid leave tax credits or the employee retention credit defer its 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 these credits, the amount of any advance payments of these credits, or the amount of any refunds with respect to these credits?

Yes. 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 the FFCRA or the employee retention credit 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.

What are the 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)?

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 December 31, 2021, 50 percent of the deferred amount; and
  • On December 31, 2022, the remaining amount.
What are the applicable dates when deferred payment of the employer's share of social security tax must be paid?

The deferred payment of the employer's share of social security tax is due on the dates described above.

 

COVID-19-Resource Center

There's also information specific to self-employed business owners on how they can defer payment of certain taxes. Check out the IRS's full FAQ for information for self-employed business owners.

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Topics: Business consulting, 2020 Coronavirus

Concannon Miller’s unique, holistic and intimate approach to financial health sets us apart from smaller CPA firms with more limited resources as well as mega firms where mid-sized clients struggle for attention. Contact us here to talk about improving your business.

This communication is designed to provide accurate and authoritative information in regard to the subject matter covered at the time it was published. However, the general information herein is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purposes of avoiding tax penalties.

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