On April 10, 2020, the IRS released guidance on the employment tax deposit deferral that came as part of the CARES Act. The guidance was released in the form of an FAQ, and addressed 11 questions that are summarized below.
Section 2302 of the CARES Act allows employers to defer payment of the 6.2% employer-portion of the Social Security tax. The period includes all taxes required to be deposited from March 27, 2020 to December 31, 2020. This deferral is automatic and no election is required to be made. The deferred Social Security taxes are due in two installments- 50% due on or before December 31, 2021, and the remaining amount due on or before December 31, 2022.
Reporting of the deferral will occur on the Form 941 for the quarters 2-4. The IRS will provide further guidance in the near future on how to report the deferral for the 1st quarter (January- March 2020.) The IRS will issue a revised Form 941 for quarters 2-4 to allow for deferral.
Self-employed individuals may also take part in the deferral. The deferral period for self-employed individuals is the same as for Form 941 filers, March 27, 2020 to December 31, 2020. They may reduce their 1040-ES quarterly payments by an amount equal to 50% of the Social Security tax on net earnings from self-employment income. Payment of the deferred portion of the self-employment taxes also occurs in 2021 and 2022.
Deferral of taxes may be limited in some cases. Employers who have received a Paycheck Protection Program (PPP) loan and had amounts forgiven as provided in Section 1102 of the CARES Act, may no longer defer the 6.2 % of the employer’s portion of the Social Security Tax as of the date the lender of the PPP loan issues a decision to issue forgiveness. The requirements to become eligible for forgiveness can be found in Section 1106 of the CARES Act. The employer may have a PPP loan outstanding and continue the deferral up until the date of forgiveness. If forgiveness is granted by the lender, the employer does not have to move up the date of payment of the deferred taxes; rather, the employer may still deposit the taxes by calendar year’s end 2021 and 2022.
This deferral may also be used along with paid leave tax credits found in the Families First Coronavirus Relief Act and the employee retention credit found in the CARES Act. The employer determines first the amount of the deferral of the Social Security taxes before taking into consideration amounts for the paid leave credit and the employee retention credit, advance payments, or any refunds with respect to these credits.
By: Tony Nitti, CPA, MST
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