Employers are generally required to pay 6.2% in Social Security taxes on workers’ wages up to $137,700. This provision allows these tax payments to be deferred through the end of the year, with half of the deferred payments due by the end of 2021 and the other half by the end of 2022. This should free up some capital at companies through the crisis. For instance, a company with 100 employees making $75K will have about $350K in payroll taxes eligible for this deferral.
NVCA is pleased to share some long-awaited FAQs from the IRS regarding the payroll tax deferral. NVCA made several requests to Treasury and the IRS for this clarity and for relief, and it appears they have more than agreed with our position. We are grateful for the staff at Treasury and IRS for taking the time to review these issues and provide helpful guidance. Two particular issues to note:
- Helpful clarity on interaction with PPP loan forgiveness recipients;
- Helpful clarity on interactions with emergency leave credit and employee retention credit.
Interaction with Loan Forgiveness Under PPP
This is very important for those planning to participate in the loan forgiveness aspect of PPP. Question 4 clarifies that IRS will allow those whose loans are forgiven under PPP (which renders them ineligible for payroll tax deferral) to defer repayment on previously deferred payroll taxes until the end of 2021/2022. To NVCA’s current knowledge, this means that all companies can access this benefit. Those whose loans are forgiven under PPP will simply have to restart their employer Social Security payroll tax payments.
4. Can an employer that has applied for and received a PPP loan that is not yet forgiven defer deposit and payment of the employer’s share of social security tax without incurring failure to deposit and failure to pay
penalties?
Yes. 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 to be made beginning on March 27, 2020, 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. 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,” as described in FAQs 7 and 8.
Interaction with Emergency Leave and Employee Retention Credits
Also, for those companies accessing either the refundable paid leave credit or the employee retention credit, questions 6 clarifies that those benefits can stack behind the payroll tax deferral, meaning companies will be able to access greater value out of those credits.
6. Can an employer that is eligible to claim refundable paid leave tax credits or the employee retention credit defer its deposit and payment of the employer’s share of social security tax prior to determining the amount of employment tax deposits that 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?
Yes. An employer is entitled to defer deposit and payment of the employer’s share of social security tax prior to determining whether the employer is entitled to the paid leave credits under sections 7001 or 7003 of FFCRA or the employee retention credit under section 2301 of the CARES Act, and prior to determining the amount of employment tax deposits that 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.
