Late Friday, April 10, 2020, the Internal Revenue Service (IRS) issued guidance clarifying that taxpayers that request a Paycheck Protection Program (PPP) loan may also take advantage of the payroll tax deferral component of the CARES Act.

In the release, the IRS made it clear that those taxpayers applying for PPP loans may defer their payroll tax deposits that are due prior to the date that the PPP loan is forgiven. Fifty percent of the amounts deferred will be due December 31, 2021, and December 31, 2022. No deferral will be permitted after the date the loan is forgiven.

In the same release, the IRS provided additional clarifications as follows:

  • Employers may defer the payment of the employer’s portion of social security taxes and certain railroad retirement taxes generally referred to as employer’s share of social security tax
  • 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 27, 2020, and ending December 31, 2020.
  • 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.
  • 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.
  • The deferred deposits of the employer’s share of social security tax must be deposited by the following dates (referred to as the “applicable dates”) to be treated as timely (and avoid a failure to deposit penalty):
    • On December 31, 2021, 50 percent of the deferred amount; and
    • On December 31, 2022, the remaining amount.
  • Self-employed individuals may defer the payment of 50 percent of the social security tax on net earnings from self-employment income imposed under section 1401(a) of the Code for the period beginning on March 27, 2020, and ending December 31, 2020.

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