Businesses Can Defer Part of Their Payroll Tax Until Next Year

Employers are responsible for withholding Social Security and Medicare payroll taxes from their employees’ paychecks and paying these taxes along with the employer’s share to the IRS each month.  The Social Security tax is 12.4% total, with 6.2% withheld from the employee’s wages and the employer paying 6.2%.  The Medicare tax is 2.9%, with 1.45% withheld from the employee’s wages and the employer paying 1.45%.

As part of aid to businesses provided in the Coronavirus Aid, Relief and Economic Security Act (CARES Act), employers can defer depositing the employer’s share of Social Security taxes until December 2021. For payroll periods starting March 27th through the end of this year, employers may defer their share of the Social Security tax (6.2%) and not deposit it with the IRS. Instead of depositing the usual amount of payroll tax, employers can simply hold back their portion of the Social Security tax each month and use it for other operating expenses.  *Please note this only applies to the employer’s portion of the Social Security tax.  Employers may not defer the employee’s part of the Social Security tax, and employers must still deposit both the employee’s and the employer’s portion of the Medicare tax each month.

Employers who decide to defer their part of the Social Security tax have until the end of next year to start depositing the amount they deferred. Half of the deferred payroll tax amount must be deposited with the IRS on December 31, 2021, with the other half due by December 31, 2022.

All employers may take advantage of this payroll tax deferral, including employers who have received a Paycheck Protection Program (PPP) loan.

For more information from the IRS about payroll tax deferral, please click here.

This payroll tax deferral is not the same as the payroll tax credits that employers may take for providing paid leave to employees or the employee retention credit. The IRS has detailed information about these credits here.

Article originally posted on FUBA.org.

 

New Law Provides Flexibility on PPP Loan Forgiveness

Under a new federal law effective June 5, 2020, the requirements for PPP loan forgiveness have been relaxed in favor of small businesses.

What is included in the bill?

The bill, which passed with a bipartisan vote, makes the following amendments to the PPP to provide relief to borrowers:

  • Loan repayment terms—The bill extends the minimum loan term for unforgiven PPP loans from two years to five years.
  • Payroll costs vs. nonpayroll costs— For forgiveness eligibility, the bill reduces the portion of PPP funds that must be spent on payroll costs from 75% to 60%, and raises the nonpayroll cost limitation from 25% to 40%.
  • Covered period extension—The bill extends the covered period during which borrowers must spend the PPP funds to be eligible for forgiveness from eight weeks to 24 weeks from the date of origination of the loan.
  • Payroll tax deferment—The bill permits borrowers to defer payroll taxes without being penalized while still remaining eligible for loan forgiveness.
  • Extension of rehiring safe harbor—The bill extends the rehiring safe harbor by six months to provide borrowers with additional time to restore payroll levels or rehire employees without facing a reduction in the amount of forgiveness for which they are eligible. The original date was June 30, 2020, and the new date is Dec. 31, 2020.

In addition to the provisions above, the bill provides loan forgiveness eligibility exemptions for borrowers that are not able to rehire an employee or a replacement. There are also exemptions for loan forgiveness eligibility for borrowers that are not able to return to the same level of business due to complying with COVID-19-related orders or circumstances.

What’s next?

Borrowers should review the bill carefully and speak to their lender should they have any questions. In addition, borrowers should direct any questions regarding their PPP loan to their lender.

We will continue to monitor any additional developments regarding the PPP and deliver updates as necessary.