IRS Issues Guidance on Employer Payroll Tax Deferral

April 15, 2020

Michele Wales, CPA
Mike Batts, CPA

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) includes a number of relief measures which may be helpful to nonprofit organizations.  One such measure is the deferral of payment of the employer’s share of Social Security taxes.  This relief provision is available to all employers (i.e., there are no apparent restrictions on the size of the employer).

Under this relief provision of the CARES Act, an employer may defer the payment of the employer’s share of Social Security tax deposits due on or after March 27, 2020 and through December 31, 2020.  The deferrable portion of the employer payroll taxes is limited to the 6.2% Social Security tax and does not include the 1.45% Medicare tax.  It also does not include deferral of any amounts withheld from employees’ wages.

Any payments that the employer chooses to defer under this relief provision are payable as follows:  half of the amount deferred must be deposited by December 31, 2021, and the remaining amount is due by December 31, 2022.  No failure to deposit and failure to pay penalties will be assessed on the deferred amounts.

Recent guidance issued by the Internal Revenue Service clarifies that an employer who has received a Paycheck Protection Program loan, but whose loan has not yet been forgiven, may defer payment of the employer’s share of Social Security taxes through the date that the lender issues a decision to forgive the PPP loan.  Once the employer receives a decision from its lender that its PPP loan is forgiven, the employer is no longer eligible to defer payment of the taxes due after that date.  Amounts deferred through the date that the PPP loan is forgiven may still be deferred and are due on the dates noted above (half due on December 31, 2021 and remainder due on December 31, 2022).

An employer may take advantage of this deferral option prior to determining whether the employer is entitled to payroll tax credits in connection with Emergency Paid Sick Leave or Emergency Family and Medical Leave paid by the employer under the recently enacted provisions of the Families First Coronavirus Response ACT (FFCRA; see our alert on those provisions for more information), or the employee retention credit under the CARES Act (see our summary of those provisions for more information).

The IRS has announced that Form 941, Employer’s Quarterly Federal Tax Return, will be revised for the second calendar quarter of 2020 to accommodate the employer Social Security tax deferral option.

Self-employed individuals (such as ministers, who are treated as self-employed for Social Security and Medicare tax purposes) may defer the payment of 50 percent of the Social Security taxes due on their net earnings from self-employment for the period beginning on March 27, 2020, and ending on December 31, 2020.  Any payments that the self-employed individual chooses to defer under this relief provision are payable as noted above: half of the amount deferred must be deposited by December 31, 2021, and the remaining amount is due by December 31, 2022.  No failure to deposit and failure to pay penalties will be assessed on the deferred amounts.

 

Our firm’s summary of the CARES Act provisions relevant for nonprofit organizations has been updated to reflect this new guidance.

 

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