While many employers immediately seized on payroll tax deferral as an effective strategy to preserve cash, the IRS recently issued guidance that may further broaden its appeal. The Coronavirus Aid, Relief, and Economic Security (CARES) Act made payroll tax deferral available to nearly all employers and self-employed individuals, allowing a delay in deposit of the employer portion of Social Security taxes that would otherwise be due between Mar. 27 and Dec. 31, 2020. One-half of such deferred amounts must be paid by Dec. 31, 2021, and the balance must be paid by Dec. 31, 2022 (the Due Dates).
- Deferral is available for the employer portion of Social Security (OASDI) taxes, which is calculated at 6.2% of the first $137,700 of employee wages.
- Deferral is not available for the employer portion of Medicare taxes (1.45% of all wages).
- Deferral is available to exempt organizations and government employers, as well as for-profit businesses.
- Employers that obtain, or intend to obtain, loans under the Paycheck Protection Program can defer deposits until such time the loans are forgiven, and those amounts can remain deferred until the Due Dates.
- Deferral is available to employers that also expect to receive Families First Coronavirus Relief Act paid leave credits or employee retention tax credits.
- Deferral is not “all or nothing”: employers can choose to defer all or a portion of their liability, and can make deposits any time prior to the Due Dates.
- The IRS plans to revise Form 941 and to issue guidance permitting employers to reflect on their second-quarter (April-June) 2020 returns those deferred deposits that would otherwise have been due on or after March 27 for the first quarter of 2020 (January-March).