3 Key Takeaways from IRS Guidance on Employment Tax Deferrals
April 14, 2020
In a guidance released by the Internal Revenue Service (IRS) on April 10, 2020, the organization addressed how the employment tax deferrals can be treated in relation to recently passed COVID-19 legislation, including the Families First Coronavirus Relief Act (FFCRA) and Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
DM Payroll Solutions has collaborated with its CPA affiliate Doeren Mayhew to highlight three key takeaways from the new guidance:
1. Paycheck Protection Program (PPP) Loan Impact
Employers who receive a PPP loan, but whose loan has not yet been forgiven, may still defer the deposit and payment of their share of social security tax without penalty through the date the lender issues a decision to forgive the loan. Once an employer receives a decision from its lender that its PPP loan is forgiven, the employer is no longer eligible to defer the 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 the PPP loan is forgiven continues to be deferred and will be due on the following dates:
- On Dec. 31, 2021 (50% of the deferred amount)
- On Dec. 31, 2022 (the remaining amount)
Failure to meet the payment deadlines will result in a penalty.
2. Tax Credits Impact
Employers may still take advantage of deferring and paying their share of social security tax prior to determining whether they are entitled to the paid leave credits under the FFCRA or the employee retention credit outlined in the CARES Act. These deferrals can also be made prior to determining the amount of employment tax deposits it may retain in anticipation of these credits, the amount of any advance payments of these credits or the amount of any refunds with respect to these credits.
3. Self-Employed Individuals Impact
Self-employed individuals may defer the payment of 50% of the social security tax on net earnings from self-employment income. Additionally, there is no penalty for failing to make estimated tax payments for 50% of social security tax on net earnings from self-employment income during the payroll tax deferral period, which began on March 27, 2020, and ends on Dec. 31, 2020.
DM Payroll Solutions will continue to monitor guidance that will impact your payroll operations. If you have any questions on how our software can accommodate these credits, please contact us today.