Article written by:
Azra Nakicevic, CPA
Director, Tax & Business Advisory Services
The Payroll Tax Deferral (“PTD”) section of the CARES Act seems to have been at least somewhat overlooked thus far by small and mid-sized companies. This is likely because the original guidance indicated that, while virtually all employers are eligible for the PTD, those that receive an SBA Payroll Protection Program (PPP) loan are ineligible if that employer has PPP indebtedness forgiven. The IRS has now issued PTD FAQs clarifying that employers that have received a PPP loan, but whose loan has not yet been forgiven, may utilize the PTD until such time as the lender issues a decision to forgive all or a portion of the PPP loan. In particular, see FAQ #4.
For deposits otherwise required to be made beginning March 27, 2020, and ending December 31, 2020, the PTD allows employers to defer payment of the employer portion of Social Security Tax (6.2% of employees’ taxable Social Security wages). These deferred deposits must be repaid by December 31, 2022, with at least 50% of the deferred amount repaid by December 31, 2021. Failure to meet these repayment obligations could result in significant failure to deposit penalties. See FAQ #7.
Effectively the PTD is akin to a short-term interest-free loan that, as noted above, must be repaid in 2021 and 2022. There is no formal election that is necessary to take advantage of this deferral. Employers should notify their payroll tax provider to begin deferring the employer portion of Social Security tax withholding.
Should you require assistance or desire to discuss the PTD in greater detail, please contact your GBQ representative.