On April 10, 2020, the IRS issued 11 FAQs on the deferral of employment tax deposits under the CARES Act in response to various questions that arose since the enactment of the new law.
One of the most important questions answered in the FAQs relates to the interplay between the employment tax deferral and the Paycheck Protection Program (PPP) Loan also included in the CARES Act.
FAQ #4 states 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.
The CARES Act and FAQs define the applicable dates in the preceding paragraph as follows:
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
This is good news for taxpayers who qualify for both benefits, as payroll taxes incurred through the determination period are deferred and are not payable for an extended period of time.
The full list of FAQs can be found at the following link: https://www.irs.gov/newsroom/deferral-of-employment-tax-deposits-and-payments-through-december-31-2020