The CARES Act allows employers to defer the deposit and payment of the employer portion of Social Security payroll taxes on wages paid for the period of March 27, 2020 through December 31, 2020. Any deferred payroll taxes would be paid in two installments: half of the deferred amount on December 31, 2021 and the remaining amount on December 31, 2022.
Deferrals are applied only to the 6.2% Social Security employer’s portion of payroll taxes. Those who are self-employed would be able to defer 50% of their net self-employment income.
Employers will indicate deferred deposits and payments on their Quarterly Federal Tax Return (Form 941) starting in the second calendar quarter of 2020.
If an employer received a PPP loan, they may defer deposit and payment of their share of Social Security tax for wages paid beginning March 27, 2020. However, once an employer receives notice that their PPP loan is forgiven, they are no longer eligible to defer deposit and payment of their share of Social Security tax. Any deposit and payment of their share of Social Security tax that was deferred through the date their PPP loan was forgiven will be deferred and due on the two installment dates as outlined above.
The good news is, the deferral of payroll taxes applies to all businesses, even if they have not been greatly impacted by COVID-19. You don’t need to apply. Simply reflect the deferral on each of your Quarterly Federal Tax Return (Form 941) filing. The IRS will not charge interest or penalties (see IRS Notice 2020-22). The deferral can help your company with cash flow if you find yourself in that situation.
More information can be found on the IRS website. Please reach out to us with any questions you may have.