COVID-19 Resources

IRS Clarifies Social Security Tax Deferral for Businesses That Have Applied for or Received a Paycheck Protection Program (PPP) Loan

Written by Adam West, CPA on April 13, 2020

As part of the CARES Act, employers may defer the employer share of Social Security taxes due between March 27 and December 31, 2020, with 50% of the deferred amount due by December 31, 2021, and the remaining 50% due by December 31, 2022. However, the CARES Act did not seem to allow an employer that receives loan forgiveness under the PPP to defer these taxes. Answers to additional PPP questions can be found here.

On April 10, 2020, the IRS released additional guidance clarifying the Social Security tax deferral for employers that have applied for or received a PPP loan. The guidance clarified that employers are able to defer the employer’s share of Social Security taxes up until the date a decision on loan forgiveness is received from the lender. The amount of taxes deferred up until the date a decision on loan forgiveness is received will continue to be deferred and not become immediately due, with 50% of the deferred amount due by December 31, 2021, and the remaining 50% due by December 31, 2022. This favorable guidance allows employers to take advantage of the Social Security tax deferral up to the date loan forgiveness is received.

An employer who receives a PPP loan must apply for loan forgiveness after the end of the 8-week covered period (i.e., 8-week period after the loan is disbursed). Then, the lender has 60 days to make a decision on loan forgiveness. Given this timing, some employers may not receive a decision on loan forgiveness until October or November. Employers who defer these taxes should plan accordingly for cash flow purposes as 50% of the deferred amount will be due in December 2021 and the remaining 50% will be due in December 2022.

#4 in the IRS’s Frequently Asked Questions (FAQ) document addresses the Social Security Tax Deferral for businesses that have applied for or received a PPP Loan

Can an employer that has applied for and received a PPP loan that is not yet forgiven defer deposit and payment of the employer’s share of Social Security tax without incurring failure to deposit and failure to pay penalties?

Yes. Employers who have received a PPP loan, but whose loan has not yet been forgiven, may defer deposit and payment of the employer’s share of Social Security tax that otherwise would be required to be made beginning on March 27, 2020, through the date the lender issues a decision to forgive the loan in accordance with paragraph (g) of section 1106 of the CARES Act, without incurring failure to deposit and failure to pay penalties. Once an employer receives a decision from its lender that its PPP loan is forgiven, the employer is no longer eligible to defer deposit and payment of the employer’s share of Social Security tax due after that date. However, the amount of the deposit and payment of the employer’s share of Social Security tax that was deferred through the date that the PPP loan is forgiven continues to be deferred and will be due on the “applicable dates,” as described in FAQs 7 and 8.

If you have any questions about how this will affect you or your business, please contact your Warren Averett advisor or complete this form to have a member of our team reach out to you.

COVID-19 Resources

This article reflects our views at the time this article was written and should be used as reference only. We recommend that you talk to your Warren Averett advisor, or another business advisor, for the most current information or for guidance specific to your organization.

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