The CARES Act permits employers to defer the deposit and payment of the
employer’s portion of social security taxes that otherwise would be due
between March 27, 2020, and Dec. 31, 2020. The law permits employers
instead to deposit half of these deferred payments by the end of 2021 and
the other half by the end of 2022.
On April 10, 2020, the
IRS issued guidance
regarding the payroll tax deferrals, offering businesses much-needed
clarification about the program. The issues addressed include the
Paycheck Protection Program loan recipients may defer paying these
The CARES Act suggested that employers who benefit from the Paycheck
Protection Program could not defer payment of social security taxes.
The new guidance clarifies that Paycheck Protection Program loan
recipients are eligible to defer deposit and
payment of the employer's share of social security tax. Once the
employer receives a decision from its lender that the loan is forgiven,
however, the employer is no longer eligible to defer such taxes after
that date. Nevertheless, for payments deferred through the forgiveness
date, an employer may continue deferral until the end of 2021 and 2022
without incurring penalties for failure to deposit and failure to pay.
June 5, 2020 Update: On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 removed the previously established prohibition on federal payroll tax deferral for employers that had a Paycheck Protection Program loan forgiven. Accordingly, all taxpayers are eligible to defer the deposit and payment of the employer’s portion of social security taxes that otherwise would be due between March 27, 2020, and Dec. 31, 2020. For additional information on the Paycheck Protection Program Flexibility Act of 2020,
All employers are eligible.
The guidance explains that all employers are
eligible for the deferral program. However, as explained above,
employers that receive a Paycheck Protection Program loan become
ineligible to continue deferring tax payments after receiving notice
that the loan is forgiven. The CARES Act also explains that taxpayers who have had a loan forgiven under the U.S. Treasury
Program Management Authority established in Section 1109 of the CARES
Act also are ineligible to participate.
- Employers need not make a special election to defer deposits and
The IRS will revise Form 941 (Employer's Quarterly Federal Tax Return)
for the second calendar quarter of 2020 (April through June 2020).
Additional information will be forthcoming about how employers should
reflect deferred deposits and payments otherwise due on or after March
27, 2020, for the first quarter of 2020 (January through March 2020).
In no case will employers be required to make a special election to be
able to defer deposits and payments of these employment taxes.
- Self-employed individuals are eligible to defer paying
The guidance explains that self-employed individuals, like employers
who pay social security taxes, may defer payment of 50 percent of the
social security tax on net earnings from self-employment income.
For additional questions about the social security tax deferral program, or
April 10 IRS guidance, please contact one of the authors of this article, any of the
McGuireWoods COVID-19 Response Team members
McGuireWoods labor and employment or tax contact.
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