IRS Issues Guidance on Payroll Tax Deferral Provisions in the CARES Act

Posted by Neely Munnerlyn

 

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) allows employers and self-employed individuals to defer payment of the employer share of the 6.2 percent social security tax that they are otherwise responsible for paying for the period beginning on March 27, 2020 (the date of enactment of the CARES Act) through December 31, 2020. It requires that the deferred taxes be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half to be paid by December 31, 2022.

The IRS has issued frequently asked questions (“FAQs”) which provide guidance on the payroll tax deferral provisions in the CARES Act. The issues addressed in the FAQs include the following:

• No Special Election Required to Defer Deposits and Payments. Employers are not required to make a special election to be able to defer deposits and payments of these employment taxes. The IRS will revise Form 941 (Employer's Quarterly Federal Tax Return) for the second calendar quarter of 2020 (April - June 2020). In the near future, the IRS will provide instructions for employers on how to reflect the deferred deposits and payments otherwise due on or after March 27, 2020 for the first quarter of 2020 (January – March 2020). 
• Interaction of Payroll Tax Deferral Relief with the Paycheck Protection Program: The CARES Act provides that taxpayers whose Paycheck Protection Program (“PPP”) loans are forgiven under the terms of the CARES Act are not eligible to defer payroll taxes. The FAQs clarify that employers who have received a PPP loan, but whose loan has not yet been forgiven, may defer deposit and payment of the employer's share of social security tax that otherwise would be required to be made beginning on March 27, 2020 through the date the lender issues a decision to forgive the loan without incurring failure to deposit and failure to pay penalties. Once an employer receives a decision from its lender that its PPP loan is forgiven, the employer is no longer eligible to defer deposit and payment of the employer's share of social security tax due after that date. However, the amount of the deposit and payment of the employer's share of social security tax that was deferred through the date that the PPP loan is forgiven continues to be deferred and will be due on December 31, 2021 or December 31, 2022, as applicable.

Please contact the above author or the Thompson & Knight attorney with whom you regularly work if you have any questions.