Paycheck Protection Program Flexibility Act Loosens Rules on Employment Tax Deferrals

Jun 24, 2020

Among the many relief provisions included in the Coronavirus Aid, Relief and Economic Security Act (CARES Act) is one that allows employers to defer the deposit and payment of employment taxes for the remainder of 2020. To provide businesses with much-needed clarification on the program, the IRS issued a compilation of frequently asked questions, found in its entirety here: https://www.irs.gov/newsroom/deferral-of-employment-tax-deposits-and-payments-through-december-31-2020

Below are key clarifications that may be of interest to you as an employer.

Does this provision apply to you?

The employment tax deferral applies to all employers, including self-employed individuals. When it was originally enacted, however, it required employers who had received a Paycheck Protection Program (PPP) loan to cease deferring payroll tax once their lender had issued a decision to forgive the PPP loan. Now, with the Paycheck Protection Program Flexibility Act (PPPFA) that was signed into law on June 5, 2020, this prohibition is no longer in place.

What deposits and payments of employment taxes are you permitted to defer, and for how long?

Specifically, employers are allowed to defer the deposit and payment of the employer portion of Social Security taxes (i.e., payroll taxes) and certain railroad retirement taxes incurred between March 27, 2020, and December 31, 2020.

To avoid a failure to deposit penalty, you must deposit the taxes by the following dates:

  • December 31, 2021– 50% of the deferred amount due
  • December 31, 2022– remaining 50% amount due

Do you have to make a special election to defer deposits and payments?

No. According to the IRS guidance, Form 941 (i.e., Employer’s QUARTERLY Federal Tax Return), will be revised for the second calendar quarter of 2020, or April through June 2020. Expect to receive additional information from the IRS regarding how to reflect deferred deposits and payments otherwise due on or after March 27, 2020.

How does this provision affect your ability to benefit from the Families First Coronavirus Relief Act (FFCRA) paid leave credits and CARES Act employee retention credit?

It doesn’t. The ability to defer employment tax deposits and payments is in addition to the relief provided in IRS Notice 2020-22, which clarified that employers who anticipate FFCRA paid leave credits and CARES Act employee retention credits will not be penalized for failing to deposit employment taxes.

Let KHA help you get the answers you need.

If you are interested in learning how you could benefit from this provision, KHA is here to be a resource for you. As your trusted advisors, we are committed to keeping you informed of any new legislation as well as CARES Act updates that could impact your business today or in the months ahead.

If you have questions, don’t hesitate to reach out to KHA today.

These sources are simply included for informational purposes. KHA Accountants, PLLC, its partners and others do not provide any assurance as to the accuracy of these items or the information included therein. As such, KHA Accountants, PLLC cannot be held liable for any information derived from referenced sources. This by no means is a recommendation to obtain a loan or attempt to apply for a loan. There are many unknowns at this time regarding what other stimulus may become available with pending and future bills, executive orders, or emergency declarations to follow, that may become laws. Consult your legal and business advisors prior to making decisions. This is intended for illustrative and discussion purposes only.

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