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 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 was forgiven continues to be deferred and will be due on the “applicable dates”.
RECAP OF THE PROVISIONS OF PAYROLL TAX DEFERRAL:
- Employer and self‐employed individuals can defer payment of the 6.2% employer share of Social Security taxes on employee wages.
- The deferral period is between 3/27/2020 to 12/31/2020.
- Payment of taxes deferred is to be made as follows on “applicable dates”:
- 50% of the deferral is required to be paid on 12/31/2021;
- Remaining 50% is required to be paid on 12/31/2022
LET’S GO OVER AN EXAMPLE TO ILLUSTRATE WHAT THIS MEANS FOR YOU:
- Company ABC’s share of 6.2% Social Security tax is as follows for:
- Period 3/27/2020 to 3/31/2020: $2,000
- Period 4/1/2020 to 6/30/2020: $50,000
- Period 7/1/2020 to 12/31/2020: $100,000
- Company ABC applies for the PPP loan with XYZ Bank on 4/6/2020.
- Company ABC receives loan from XYZ bank on 4/30/2020.
- XYZ Bank informs Company ABC on 6/30/2020 that the qualifying portion of the PPP loan has been forgiven.
What is the amount of payroll taxes that can be deferred by ABC?
Payroll taxes in the amount of $52,000 from 3/27/2020 through the date of PPP forgiveness (i.e. 6/30/2020 in our example) can be deferred.
The payroll taxes must be paid as follows:
- On 12/31/2021: $26,000
- On 12/31/2022: $26,000
What is the mechanics of deferring the payroll taxes?
The IRS will be revising Form 941 for the 2nd quarter of 2020 that will reflect deferred deposits and payment due. In addition, guidance on how to reflect deferred deposits for the period 3/27/2020 to 3/31/2020 will be provided soon.
If you have any questions concerning the above, please contact EPGP Partner, Alan Ehrlich, Esq.