The Coronavirus, Aid, Relief and Economic Security Act (CARES Act) allows employers to defer the payment of the employer share of FICA taxes (6.2%) and certain railroad retirement taxes. The amount of the employer share of FICA taxes due for the period beginning on March 27, 2020, and ending December 31. 2020, can be deferred. The deferred amounts will then be paid as follows:
The employer must still deposit the employer’s share of the hospital insurance tax (1.45% portion) as well as all of the employee’s share of the payroll taxes withheld.
Any taxpayer that has a portion of their loan forgiven under the CARES Act is not eligible for this deferral. However, the IRS has issued frequently asked questions (FAQ) allowing employers to defer a portion of their payroll taxes even if they have received a Paycheck Protection Program (PPP) loan that it expected to be forgiven. Under the FAQ, an employer is eligible to defer the payment of the employer share of FICA taxes up to the date that the lender provides notice that the (PPP) loan is forgiven. Once the PPP forgiveness notice has been received, the employer will no longer be able to defer paying the employer share of FICA taxes. Any amounts that were deferred will be due in 2021 and 2022 as outlined above.
This may give many employers who are expecting PPP forgiveness an opportunity to defer a portion of the payroll taxes for many months. Considering that some employers may have to wait until after June 30, 2020 for submission of the loan forgiveness request and then the lender has another 60 days after that to respond, it may be a 4- or 5-month (or longer) payroll tax deferral for some PPP recipients.
In addition, self-employed individuals can apply the above rules by deferring 50% of the social security tax on their net earnings from self-employment.