OFFICIAL PUBLICATION OF THE NEBRASKA SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS

2020 | Issue 3

Employer-Payroll-Tax-Delay-

Employer Payroll Tax Delay Can Help Cash-Strapped Businesses

The employer’s share of Social Security tax (but not Medicare tax) can be delayed and paid over two years. Many business clients may not know that the deferral applies to:

  • Self-employed individuals, and
  • Recipients of Paycheck Protection Program (PPP) loans, but only until the date of PPP loan forgiveness.

Employer Payroll Tax Delay
Employers must withhold Social Security taxes on employee wages. Self-employed individuals are subject to self-employment tax. Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, taxpayers are allowed to defer paying the 6.2% employer share of the Social Security tax (but not the 1.45% employer share of the Medicare tax) through the end of 2020. The tax is payable over the following two years with half paid by December 31, 2021, and the other half by December 31, 2022.

Deferral Period
The deferral applies to deposits and payments of the employer’s share of Social Security tax that would otherwise be required to be made during the period beginning on March 7, 2020, and ending December 31, 2020. (Section 2302 of the CARES Act calls this period the “payroll tax deferral period.”)

Applicable Dates
The payment for applicable employment taxes between March 27, 2020, and January 31, 2021, won’t be due before the applicable dates. The applicable dates are:

  1. December 31, 2021, for 50% of employment and self-employment taxes
  2. December 31, 2022, for the remaining 50% of those amounts.

An employer is treated as timely in making all deposits of applicable employment taxes required if all such deposits are made by the applicable date.

An employer is treated as timely quote

Self-Employed Individuals
Self-employed individuals may defer the payment of 50% of the self-employment tax on net earnings for the period beginning on March 27, 2020, and ending December 31, 2020. The deferred payment amounts are due on December 31, 2021, for 50% of employment and self-employment taxes, and December 31, 2022, for the remaining 50% of those amounts.

PPP Loan Coordination
Employers who have received a PPP loan 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, 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 December 31, 2021, for 50% of employment and self-employment taxes, and December 31, 2022, for the remaining 50% of those amounts.

Read more about the deferral of payroll tax deposits in the IRS FAQs at
https://www.irs.gov/newsroom/deferral-of-employment-tax-deposits-and-payments-through-december-31-2020.

For more information, contact Western CPE’s customer service center at
(800) 822-4194 or wcpe@westerncpe.com. ©2020 Vern Hoven and Sharon Kreider

This story appears in 2020 Issue 3 of the Nebraska CPA Magazine.

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