IRS Releases Additional Guidance for CARES Act Payroll Deferrals
The Internal Revenue Service (“IRS”) issued new guidance today, April 10, 2020, on an employer’s ability to defer its share of Social Security taxes under the recently-enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The new guidance is provided as FAQs (available here).
Hill Ward Henderson previously issued a Client Alert summarizing some of the key provisions of the CARES Act (available here). As discussed in this prior Client Alert, the CARES Act allows employers to defer payment of the employer’s share of the 6.2% Social Security tax on wages paid beginning on March 27, 2020 and ending on December 31, 2020 (“Qualified SSI Taxes”). The deferred Qualified SSI Taxes are payable in two installments, with 50% of such taxes being due on December 31, 2021, and the remainder due on December 31, 2022.
As noted in our prior Client Alert, an employer is not eligible to defer Qualified SSI Taxes where the employer has a covered loan forgiven as part of the Paycheck Protection Program enacted in the CARES Act (a “PPP Loan”). Prior to issuance of the FAQs today, there was uncertainty on how the deferral would apply when an employer received a PPP Loan that was later forgiven.
This new guidance confirms three important points:
First, an employer that receives a PPP Loan may defer Qualified SSI Taxes until the PPP Loan is forgiven.
Second, once the PPP Loan is forgiven (i.e., “the date the lender issues a decision to forgive the loan in accordance with the [CARES Act]”), the employer must stop deferring additional Qualified SSI Taxes with respect to any taxes required to be deposited with the IRS after the forgiveness date.
Finally, for Qualified SSI Taxes previously deferred (i.e., the due date for the deposit was prior to the forgiveness date), the employer may continue to defer those taxes until the applicable deferred dates specified above (i.e., 50% being due on December 31, 2021, and the remainder due on December 31, 2022).