The Coronavirus Aid, Relief, and Economic Security (CARES) Act brought with it a series of tax provisions aimed at assisting businesses in maintaining higher levels of liquidity during the COVID-19 pandemic.
One such tax provision, the delay of payment of employment payroll taxes, allows eligible employers to defer paying their portion of the Social Security taxes (6.2%) that would have been otherwise due between March 27, 2020 and December 31, 2020.
Those able to take advantage of the new tax provision will be allowed to pay the deferred payroll tax amounts in two installments. This means half will be due December 31, 2021 and the remaining half will be due December 31, 2022.
On April 10, 2020, the IRS released a FAQ one-sheet, which addresses specific issues related to the deferral of deposit and payment of these employment taxes. Some important highlights include:
- The delayed provisions now apply to all employers regardless of size.
- Employers who have applied for and/or received a Paycheck Protection Program (PPP) Loan may delay payment of employer payroll taxes. However, 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.
- Self-employed individuals may also take advantage of the tax provision.
- Employer Medicare tax (1.45%) and all employee withholding payments are required to be paid by normal due dates established prior to the passing of the CARES Act.
We will update you as additional guidance from the IRS and third-party payroll providers becomes available.
As always, there are many details to consider when deciding if this tax provision is right for you. We strongly encourage you to talk to your accountant, financial advisor, and legal counsel before making any decisions.
Please do not hesitate to contact us with any questions. Stay safe and healthy!