The IRS has released a set of frequently asked questions on the deferral of the employer’s share of the FICA Old Age Survivor’s and Disability insurance tax, a provision added by the CARES Act.[1]  While summarizing the relief provided in the Act, the FAQ also provides answers to some questions that had been raised under the provision.

The IRS describes the program generally as follows in the FAQ:

Section 2302 of the CARES Act provides that employers may defer the deposit and payment of the employer’s portion of social security taxes and certain railroad retirement taxes. These are the taxes imposed under section 3111(a) of the Internal Revenue Code (the “Code”) and, for Railroad employers, so much of the taxes imposed under section 3221(a) of the Code as are attributable to the rate in effect under section 3111(a) of the Code (collectively referred to as the “employer’s share of social security tax”). Employers that received a Paycheck Protection Program loan may not defer the deposit and payment of the employer’s share of social security tax that is otherwise due after the employer receives a decision from the lender that the loan was forgiven. (See FAQ 4).[2]

The time period covered by the program is outlined by the IRS, as well as the fact that a revised Form 941 is coming for the second quarter and instructions are to come on how to report for the first quarter:

The deferral applies to deposits and payments of the employer’s share of social security tax that would otherwise be required to be made during the period beginning on March 27, 2020, and ending December 31, 2020. (Section 2302 of the CARES Act calls this period the “payroll tax deferral period.”)

The Form 941, Employer’s QUARTERLY Federal Tax Return, will be revised for the second calendar quarter of 2020 (April - June, 2020). Information will be provided in the near future to instruct employers how to reflect the deferred deposits and payments otherwise due on or after March 27, 2020 for the first quarter of 2020 (January – March 2020).  In no case will Employers be required to make a special election to be able to defer deposits and payments of these employment taxes.[3]

While all employers can initially defer taxes under this program, an employer who has debt forgiven on a PPP loan will lose that ability at the time the debt forgiveness is approved.[4] 

How an employer who gets PPP debt forgiveness will deal with this issue is explained. Some observers had expressed a concern that an employer might retroactively lose the ability to defer, resulting in a sudden payroll tax liability, but the IRS held that is not the case.  Rather the IRS provides:

4. 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.[5]

This will serve to relieve employers of most of the burden of paying payroll taxes during the 8-week period given to spend the funds received from a PPP loan, as the debt forgiveness won’t take place until after that period has concluded.  As well, recall that state payroll taxes are generally considered part of payroll costs for PPP loan forgiveness purposes, so the employer may not initially end up with having to dive into the employer’s other funds to pay most taxes during the 8-week period.

The FAQ provides that this deferral is available to an employer who is receiving the payroll related tax credits from the Families First Coronavirus Relief Act (FFCRA) and the CARES Act employee retention credit:

Notice 2020-22 provides relief from the failure to deposit penalty under section 6656 of the Code for not making deposits of employment taxes, including taxes withheld from employees, in anticipation of the FFCRA paid leave credits and the CARES Act employee retention credit. The ability to defer deposit and payment of the employer’s share of social security tax under section 2302 of the CARES Act applies to all employers, not just employers entitled to paid leave credits and employee retention credits. (But see the limit described in FAQ 4 for employers that have a PPP loan forgiven.)[6]

The FAQ also discusses the interaction of the deferral and the refundable payroll tax credits.

6. Can an employer that is eligible to claim refundable paid leave tax credits or the employee retention credit defer its deposit and payment of the employer’s share of social security tax prior to determining the amount of employment tax deposits that it may retain in anticipation of these credits, the amount of any advance payments of these credits, or the amount of any refunds with respect to these credits?

Yes. An employer is entitled to defer deposit and payment of the employer’s share of social security tax prior to determining whether the employer is entitled to the paid leave credits under sections 7001 or 7003 of FFCRA or the employee retention credit under section 2301 of the CARES Act, and prior to determining the amount of employment tax deposits that it may retain in anticipation of these credits, the amount of any advance payments of these credits, or the amount of any refunds with respect to these credits.[7]

The FAQ notes that the deferred deposit dates are:

• December 31, 2021 for deposit of 50% of the amount deferred; and

• December 31, 2022 for the deposit of the remaining taxes.

So long as the deposits are made by those dates, they will be treated as timely paid and the taxpayer will avoid a failure to deposit penalty and a failure to pay penalty.[8]

Questions 9-11 describe the similar rules for self-employed taxpayers:

9. Are self-employed individuals eligible to defer payment of self-employment tax on net earnings from self-employment income?

Yes. Self-employed individuals may defer the payment of 50 percent of the social security tax on net earnings from self-employment income imposed under section 1401(a) of the Code for the period beginning on March 27, 2020, and ending December 31, 2020. (Section 2302 of the CARES Act calls this period the “payroll tax deferral period.”)

10. Is there a penalty for failure to make estimated tax payments for 50 percent of social security tax on net earnings from self-employment income during the payroll tax deferral period?

No. For any taxable year that includes any part of the payroll tax deferral period, 50 percent of the social security tax imposed on net earnings from self-employment income during that payroll tax deferral period is not used to calculate the installments of estimated tax due under section 6654 of the Code.

11. What are the applicable dates when deferred payment amounts of 50 percent of the social security tax imposed on self-employment income must be paid?

The deferred payment amounts are due on the “applicable dates” as described in FAQ 7.[9]

[1] Deferral of employment tax deposits and payments through December 31, 2020, IRS Website, April 10, 2020 version, https://www.irs.gov/newsroom/deferral-of-employment-tax-deposits-and-payments-through-december-31-2020 , retrieved April 10, 2020

[2] Deferral of employment tax deposits and payments through December 31, 2020, IRS Website, FAQ 1

[3] Deferral of employment tax deposits and payments through December 31, 2020, IRS Website, FAQ 2

[4] Deferral of employment tax deposits and payments through December 31, 2020, IRS Website, FAQ 3

[5] Deferral of employment tax deposits and payments through December 31, 2020, IRS Website, FAQ 4

[6] Deferral of employment tax deposits and payments through December 31, 2020, IRS Website, FAQ 5

[7] Deferral of employment tax deposits and payments through December 31, 2020, IRS Website, FAQ 6

[8] Deferral of employment tax deposits and payments through December 31, 2020, IRS Website, FAQ 7, 8

[9] Deferral of employment tax deposits and payments through December 31, 2020, IRS Website, FAQ 9-11