IRS Issues Guidance on Employer Payroll Tax Deferral

April 15, 2020 (Updated June 3, 2021)

Michele Wales, CPA
Kaylyn Varnum, 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.

Prior to the enactment of the PPP Flexibility Act, an employer that received a PPP loan was not permitted to defer deposit and payment of the employer’s share of Social Security tax after the receipt of the lender’s decision forgiving all or a portion of the employer’s PPP loan. The PPP Flexibility Act, enacted on June 5, 2020 amended the CARES Act by striking the rule that would have prevented an employer from deferring the deposit and payment of the employer’s share of Social Security tax after the employer received a decision that its PPP loan was forgiven by the lender. Therefore, an employer that received a PPP loan is entitled to defer the payment and deposit of the employer’s share of Social Security tax, even if the loan was forgiven.

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), or the employee retention credit under the CARES Act (see our outline on the employee retention credit).

The Form 941, Employer’s Quarterly Federal Tax Return, was revised for the second, third, and fourth calendar quarters 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.

BMWL Can Help

BMWL’s COVID-19 Task Force is ready, willing, and able to help our clients navigate the deferral of employer Social Security taxes. Nonprofit organizations that would like the assistance of our Task Force in addressing this topic should contact us at [email protected].

 

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