CARES Act – IRS Releases Guidance on Social Security Tax Deferral

22 April 2020 Coronavirus Resource Center Blog
Authors: Michael Abbott Jordan J. Bergmann

On April 10, 2020, the IRS released guidance in the form of an FAQ regarding the ability of employers to delay payment of certain payroll taxes.

Under Section 2302 of the CARES Act, employers can delay payment of the employer’s share of social security taxes (6.2%) otherwise required to be paid during the period beginning on March 27, 2020, and ending December 31, 2020.  Half of the delayed payroll taxes will be due by December 31, 2021, with the other half due by December 31, 2022.

The same deferral extends to (a) 50% of the social security taxes imposed under the Self-Employed Contributions Act (6.2%) and (b) employment tax imposed on employers under the Railroad Retirement Tax Act (6.2%).

The IRS guidance clarified a few aspects of the deferral for employers:

  • First, the IRS advised that it plans to revise the Form 941, Employer’s QUARTERLY Federal Tax Return, for Q2 of 2020 to reflect the deferred deposits and payments.  For taxes deferred in Q1, the IRS intends to issue guidance in the near future instructing employers how to reflect the deferred deposits and payments.

  • Second, the IRS clarified that employers may defer deposit of the applicable taxes prior to determining whether the employer is entitled to paid leave credits under Sections 7001 or 7003 of FFCRA or the employee retention credit under Section 2301 of the CARES Act.

  • Third, the IRS clarified the exception for employers who receive loan forgiveness under Section 1106, the Paycheck Protection Loan Program (“PPP Loan”), or Section 1109 of the CARES Act. With respect to PPP Loan forgiveness, the IRS states in FAQ 4 of the guidance that employers who apply for and receive a PPP Loan may defer the applicable taxes “through the date the lender issues a decision to forgive the loan in accordance with paragraph (g) of section 1106 of the CARES Act, 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.  The amounts deferred through the date of the loan forgiveness will continue to be deferred until December 31, 2021 and December 31, 2022.

Click here for further explanation of the payroll tax deferral, as well as other tax provisions of the CARES Act affecting taxes.  Foley has created a multi-disciplinary and multi-jurisdictional team, which has prepared a wealth of topical client resources and is prepared to help our clients meet the legal and business challenges that the coronavirus outbreak is creating for stakeholders across a range of industries. Click here for Foley’s Coronavirus Resource Center to stay apprised of relevant developments, insights and resources to support your business during this challenging time. To receive this content directly in your inbox, click here and submit the form. 

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