Payroll Tax Deferral Under the CARES Act

April 22, 2020

An employer is barred from deferring the payroll tax under the CARES Act provision if they receive a Paycheck Protection Program loan and any portion of the loan is forgiven. However, there is a timing issue. Employers are paying taxes now and may not know whether they will actually receive a loan or whether any portion will be forgiven.  The IRS has clarified this issue:

An employer will be able to defer payment of 6.2% of wages paid between 3/27 and date formal notice is received from the bank that all or a portion of the PPP will be forgiven.

  • After this notice date, the employer can no longer increase the deferral amount.
  • Taxes deferred on wages between 3/27 and date of notice, are paid in two installments 50% on 12/31/21 and balance on 12/31/2022 (just because forgiveness was provided, payment will not be accelerated)

General Tax Treatment:  Deferral of payment may result in shifting of deduction timing.  Year-end planning should be considered as to potential tax impact of shifting a deduction into a later tax year.

Reminder:  The employer payroll tax deferral is open to all employers.  Employer size and impact of COVID 19 on business or employees is not a factor.

If you are interested in the deferral opportunity you should reach out to your payroll service provider for additional information.  The IRS is working on updating Form 941 for the deferral option.

The IRS and Treasury continue to post and update FAQs as they receive more inquiries.  A recent list of FAQs on the employer payroll tax (6.2%) deferral can be found here.