Deferral of Employment Tax Deposits Under CARES Act Clarified
UPDATE: The Paycheck Protection Program Flexibility Act updated guidance to say an employer that receives a PPP loan is entitled to defer the payment and deposit of the employer’s share of Social Security tax, even if the loan is forgiven.
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.
One of the many provisions under the Coronavirus, Aid, Relief and Economic Security Act (CARES Act) allows employers to defer the deposit and payment of their share of social security taxes and self-employed individuals to defer payment of certain self-employment taxes. The IRS has issued some clarifications to help employers ensure they comply with the provisions to avoid incurring failure to deposit and failure to pay penalties.
As requirements and guidance on the process change, Ericksen Krentel professionals are available to help you. For tax credit and other tax-related matters, contact Kevin Neyrey at kneyrey@ericksenkrentel.com or Kenny Eldridge at keldridge@ericksenkrentel.com.
You can click on any provision in the list below to go directly to that summary (direct link feature may not work on mobile devices):
- What employment taxes deposits and payments can employers defer?
- When can employers begin deferring deposit and payment of the employer’s share of social security tax without incurring failure to deposit and failure to pay penalties?
- Which employers may defer deposit and payment of their share of social security tax without incurring failure to deposit and failure to pay penalties?
- Can an employer that has applied for and received a PPP loan that is not yet forgiven defer deposit and payment of the employer’s share of social security tax without incurring failure to deposit and failure to pay penalties?
- Is this ability to defer deposits of the employer’s share of social security tax in addition to the relief for deposit of employment taxes in anticipation of the Families First Coronavirus Relief Act (FFCRA) paid leave credits and the CARES Act employee retention credit?
- Can an employer eligible to claim refundable paid leave tax credits or the employee retention credit defer its deposit and payment of its share of social security tax before determining the amount of employment tax deposits it may retain?
- What are the applicable dates when deferred deposit and payment of the employer’s share of social security tax must be paid (to avoid a failure to pay penalty)?
- Are self-employed individuals eligible to defer payment of self-employment tax on net earnings from self-employment income?
- Is there a penalty for failure to make estimated tax payments for 50% of social security tax on net earnings from self-employment income during the payroll tax deferral period?
- What are the applicable dates when deferred payment amounts of 50% of the social security tax imposed on self-employment income must be paid?
What employment taxes deposits and payments can employers defer?
The employer’s share of social security tax. But there are caveats if an employer receives a PPP loan (see below by clicking here).
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When can employers begin deferring deposit and payment of the employer’s share of social security tax without incurring failure to deposit and failure to pay penalties?
The deferral applies to deposits and payments of the employer’s share of social security tax that would otherwise be required beginning March 27, 2020, and ending December 31, 2020. (The CARES Act calls this period the “payroll tax deferral period.”)
Form 941, the Employer’s Quarterly Federal Tax Return, will be revised for the second calendar quarter of 2020 (April-June 2020). Employers will receive information soon 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).
Employers will not be required to make a special election to be able to defer deposits and payments of these employment taxes.
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Which employers may defer deposit and payment of their share of social security tax without incurring failure to deposit and failure to pay penalties?
All employers may defer the deposit and payment of their share of social security tax.
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Can an employer that has applied for and received a PPP loan that is not yet forgiven defer deposit and payment of the employer’s share of social security tax without incurring failure to deposit and failure to pay penalties?
The Paycheck Protection Program Flexibility Act updated guidance to say an employer that receives a PPP loan is entitled to defer the payment and deposit of the employer’s share of Social Security tax, even if the loan is forgiven.
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.
Is this ability to defer deposits of the employer’s share of social security tax in addition to the relief for deposit of employment taxes in anticipation of the Families First Coronavirus Relief Act (FFCRA) paid leave credits and the CARES Act employee retention credit?
Yes. This applies to all employers, not just employers entitled to paid leave credits and employee retention credits.
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Can an employer eligible to claim refundable paid leave tax credits or the employee retention credit defer its deposit and payment of its share of social security tax before determining the amount of employment tax deposits it may retain:
- in anticipation of these credits;
- the amount of any advance payments of these credits, or;
- the amount of any refunds with respect to these credits?
Yes.
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What are the applicable dates when deferred deposit and payment of the employer’s share of social security tax must be paid (to avoid a failure to pay penalty)?
- 50% of the deferred amount on December 31, 2021
- The remaining amount on December 31, 2022
Are self-employed individuals eligible to defer payment of self-employment tax on net earnings from self-employment income?
Yes. Self-employed individuals may defer the payment of 50% of the social security tax on net earnings from self-employment income for the period beginning March 27, 2020, and ending December 31, 2020.
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Is there a penalty for failure to make estimated tax payments for 50% of social security tax on net earnings from self-employment income during the payroll tax deferral period?
No. For any tax year that includes any part of the payroll tax deferral period, 50% of the social security tax imposed on net earnings from self-employment income during that payroll tax deferral period is not used to calculate the installments of estimated tax.
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What are the applicable dates when deferred payment amounts of 50% of the social security tax imposed on self-employment income must be paid?
- 50% of the deferred amount on December 31, 2021
- The remaining amount on December 31, 2022
As questions or concerns arise, we ask that you contact us so we can address them as quickly as possible to ensure we continue to meet your needs. As a reminder, you can always monitor our COVID-19 Updates webpage by clicking here for the latest or monitoring our accounts on LinkedIn, Twitter or Facebook.
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About Ericksen Krentel
Ericksen Krentel CPAs and Consultants, founded in New Orleans, Louisiana in 1960 with offices in New Orleans and Mandeville, believes that serving as the clients’ most trusted adviser is grounded in going beyond the numbers.
That includes helping clients achieve their business and personal financial goals by providing innovative and exceptional services in the following areas: audit and assurance services, tax compliance and planning, outsourced CFO services and business valuations for a variety of industries; employee benefit plan audits; fraud and forensic accounting; business planning; IT consulting; loss calculations; and estate planning.
Learn more at www.ericksenkrentel.com.
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