The IRS released guidance on the ability to defer employment tax deposits that sheds light on how that interacts with other parts of the coronavirus legislation.
In an FAQ released April 10, the government said an employer that has received a Paycheck Protection Program (PPP) loan can still defer the deposit and payment of its share of Social Security taxes without penalty through the date the lender issues a decision to forgive the loan.
“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,” the FAQ states. However, the amount of the deposit and payment of the employer’s share of the tax that was deferred through the date the loan was forgiven continues to be deferred and will be due on a later date specified in the guidance.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) provides businesses with various forms of relief aimed at easing the fallout from the economic downturn and keeping employees on the payroll. The law allows employers to defer deposits and payments of their share of Social Security taxes, and also allows self-employed individuals to defer payment on some of their taxes.
The CARES Act also modified section 7(a) of the Small Business Act to create the PPP. Employers must jump through several hoops to qualify for the loans, which will be forgiven on a tax-free basis if a specific portion of the proceeds is used to fund payroll costs over the eight-week period after receiving the loan.
The FAQ addresses the general application of the employment tax deferral process and touches on its application with other employment tax changes, such as the CARES Act employee retention credit.
Self-employed individuals are also eligible to defer payment of self-employment tax on net earnings from self-employment income, the FAQ notes.
“Self-employed individuals may defer the payment of 50 percent of the social security tax on net earnings from self-employment income imposed under section 1401(a) of the Code for the period beginning on March 27, 2020, and ending December 31, 2020,” according to the guidance.
There’s also no penalty for the failure to make estimated tax payments for 50 percent of Social Security tax on net earnings from self-employment income during the payroll tax deferral period, the FAQ says.