The IRS recently released guidance on the CARES Act employment tax deposit deferral. Below are the highlights of the deferral, including eligibility, timeline and use with other incentives.
Deferral Eligibility
The CARES Act allows employers to defer deposits and payments of the employer’s portion of social security taxes. The payroll tax deferral period is from March 27, 2020 and ending December 31, 2020. This deferral is automatic and no election is required to be made.
The ability to defer deposit and payment of the employer’s share of social security tax applies to all employers, not just employers entitled to paid leave credits and employee retention credits. Self-employed individuals may also take part in the deferral with the same timeline and conditions.
It’s important to note that employers that received a Paycheck Protection Program (PPP) loan may not defer the deposit and payment of the employer’s share of social security tax that is otherwise due after the employer receives a decision from the lender that the loan was forgiven. Employers who have received a PPP loan that has not yet been forgiven are still eligible for the deferral.
Deposit Timeline
The deferred deposits of the employer’s share of social security tax must be deposited by the following dates to be treated as timely and avoid a penalty:
- On December 31, 2021, 50% of the deferred amount; and
- On December 31, 2022, the remaining amount.
Combining Incentives
This deferral can be used along with paid leave tax credits found in the Families First Coronavirus Relief Act and the employee retention credit in the CARES Act. The employer first determines the amount of the deferral of the social security taxes before taking into consideration amounts for the paid leave credit and the employee retention credit, advance payments, or any refunds with respect to these credits.
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