The CARES Act provided employers an opportunity to defer payment of its 6.2% employer Social Security taxes on wages paid to employees during 2020. However, the Act provided that employers who had a Paycheck Protection Program (PPP) loan forgiven would be ineligible to participate in the deferral.
On Friday, April 10, the IRS clarified that the 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 that otherwise would be required on March 27, 2020, through the date the lender issues a decision to forgive the loan without incurring failure to deposit and failure to pay penalties. This is in accordance with paragraph (g) of section 1106 of the CARES Act.
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 is forgiven continues to be deferred and will be due on the “applicable dates,” which is one-half of the deferred amount due on December 31, 2021, and the remaining amount on December 31, 2022.
Utilizing this deferral may provide your business with additional cash flow during this uncertain time. Please contact your H2R CPA liaison if you would like to discuss this matter further.