CARES Act: Deferral of Employer’s Tax Deposits and Payments & Self-Employment Taxes

Under the Coronavirus, Aid, Relief and Economic Security Act (CARES Act), there was a section pertaining to the deferral of the employer’s share of Social Security taxes, as well as for self-employed individuals to defer certain self-employment taxes.

Deferral of Employer’s Share of Social Security Taxes

Who is eligible?

All employers are eligible to defer the deposit and payment of the employer’s share of Social Security tax. However, if an employer has received a loan under the Paycheck Protection Program (PPP), they cannot defer the deposit and payment of the employer’s share of Social Security tax due after the employer receives a decision from their lender that the PPP loan is forgiven.

What can be deferred?

Eligible employers may defer the deposit and payment of the employer’s portion of Social Security taxes and certain railroad retirement taxes. If an employer received the PPP loan, they are not eligible to defer the deposit and payment of the employer’s share of Social Security tax after the employer receives a decision from their lender that the PPP loan is forgiven.

When can employers begin deferring these deposits and payments?

This applies to deposits and payments of the employer’s share of Social Security tax that would be required during the period beginning on March 27, 2020 and ending December 31, 2020.

The Form 941, Employer’s Quarterly Federal Tax Return, will be revised for the second quarter of 2020 (April – June 2020). Further information will be provided by the IRS to instruct employers on how to reflect the deferred deposits and payments due on or after March 27, 2020 for the first quarter of 2020 (January – March 2020).

When will the deferred deposits and payments of the employer’s share of Social Security tax be due?

To be treated as timely and avoid a failure to deposit penalty, employers must pay 50% of the deferred amount on December 31, 2021 and the remaining amount on December 31, 2022.

How does receiving the PPP loan affect an employer’s eligibility to defer payments and deposits?

Employers who received PPP loans are eligible to defer the employer’s share of Social Security taxes up until the point that they are informed by their lender that their PPP loan is forgiven. After a decision on forgiveness is issued by the lender, the employer cannot continue to defer deposits and payments. The amount of the deposit and payment of the employer’s share of Social Security tax that was deferred prior to the date the lender issued forgiveness will follow the due dates listed above.

Is this deferral of the employer’s share of Social Security tax in addition to the relief provided under the Families First Coronavirus Response Act (FFCRA) for deposit of employment taxes in anticipation of paid leave credits and the CARES Act employee retention credit?

Yes, as long as you are an eligible employer under the FFCRA, you can still take the relief from the failure to deposit penalty for not making deposits of employment taxes, including taxes withheld from employees, in anticipation of paid leave credits under the FFCRA and the employee retention credit under the CARES Act.

Deferral of Self-Employment Taxes

What can self-employed individuals defer?

Self-employed individuals are eligible to defer the payment of 50% of the Social Security tax on net earnings from self-employment income for the period beginning on March 27, 2020 and ending December 31, 2020.

When will the deferred payments be due for self-employed individuals?

The self-employment will follow the same due dates as the employer’s share of Social Security tax deferment. 50% of the amount owed will be due on December 31, 2021, and the remaining amount will be due on December 31, 2022.

Will a penalty be assessed for the failure to make estimated tax payments for 50% of Social Security tax on net earnings?

No. For any taxable year that includes any part of the payroll tax deferral period, 50% of the Social Security tax imposed on net earnings from self-employment income during that payroll tax deferral period is not used to calculate the installment payments of estimated taxes due.

If you have any questions, please contact your BSSF Advisor or use our contact form to contact us today!

Disclaimer: This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.