The Coronavirus, Aid, Relief and Economic Security Act (CARES Act) allows employers to defer the payment of the employer's share of Social Security taxes.
Section 2302 of the CARES act addresses this deferral. On April 10, 2020, the IRS issued guidance which clarified many aspects of this deferral such as how this works, which taxes can be deferred, which employers can take advantage, and most importantly it clarified that employers which have deferred their tax payments under this section and have a PPP loan can still apply and receive forgiveness and only after an employer once an employer receives a decision from its lender that its PPP loan is forgiven can they no longer defer the payments of future liabilities.
What Does This Mean for Employers?
Businesses are permitted to defer their 6.2% employer share of social security tax due between the enactment date of March 27, 2020 and before January 1, 2021. The maximum deferral amount per employee is $8,537.40 (6.2% of wages up to the social security wage base of $137,700 = $8,537.40).
When will they become due?
The deferred deposits of the employer's share of Social Security tax must be deposited by the following 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.
Which employer is eligible for it, are there exceptions?
All employers regardless of size are eligible to defer their tax liabilities under this section. This includes Employers which received a loan under the Paycheck Protection Program and they will not forfeit their eligibility to be forgiven the loan even if they are deferring the taxes under this section.
However, an employer which received a loan under the Paycheck Protection program will need to cease deferring liabilities once the employer receives a decision from its lender that the loan is forgiven. Nevertheless, payments deferred through the forgiveness date, does not become due but rather remains deferred until the end of 2021 and 2022 without incurring penalties for failure to deposit and failure to pay.
What steps do I need to take to defer my employer portion of Social Security taxes within Brands Paycheck?
- Fill out this tax deferral agreement.
- Email it to CS@brandspaycheck.com.
- It will be processed, and our customer support department will confirm when your company has been setup.
Will Brands Tax Service pay the taxes when they become due?
No. While its possible that future guidance on how to pay these liabilities will give us the ability to assist you in these payments when they become due, you should operate with the assumption that unless we will tell you otherwise your company will need to make the payments when they become due on December 31 2021 and December 31 2020.
When do I have to advise Brands to stop deferring Payments?
If your company receives a decision from its lender that the loan is forgiven, you must immediately reach out to us and advise us to stop the deferral of future tax liabilities. We will advise you how to send this request to us in a formal manner.
Note: At the end of 2020 we will automatically cease delaying your tax liabilities as this law is currently set to end 12-31-2020.
Important Update: On June 5, 2020, the president signed into law the H.R.7010 - Paycheck Protection Program Flexibility Act of 2020. The Act eliminates the effect of loan forgiveness on the Paycheck Deferral. Accordingly, employers are allowed to continue deferring even after they received loan forgiveness. For more details read our Summary of Paycheck Protection Flexibility Act.
After setting this up what else do I need to do?
- Ensure that you are monitoring the accumulation of this future liability so that when they become due your company has the funds to pay them.
- If your company receives accounting exports from us (such as IIF Exports, Fund Easy Export, or any other GL export) be sure to reach out to us and advise us of how your company would like this to be reflected in the export (as there are many different ways you might want to track this).
- When they become due you should actually make the payment as the tax service will not be able to make the tax payment for you since we did not draft the monies from your company at the time of payroll.