The IRS has updated its FAQ on the deferral of employment tax deposits and payments through December 31, 2020[1] to take into account changes made by the Paycheck Protection Program Flexibility Act (PPPFA).

The CARES Act provided that employers were allowed to defer the payment of the employer portion of old age, survivors and disability insurance (the 6.2% FICA tax) for payments due on or after March 27, 2020 and before January 1, 2021. The employer would then pay the tax in two installments, one half due on December 31, 2021 and the other half due on December 31, 2022.

Under the original CARES Act provision, if a taxpayer had a PPP loan forgiven, the taxpayer would no longer be allowed to defer the employer taxes. The PPPFA eliminated this restriction, so all employers, regardless of whether they have a PPP loan forgiven or not, are eligible to take advantage of this deferral through the end of 2020.

The IRS has an updated Question 4 to the FAQ to reflect this change. Question 4 provides:

4. May an employer that receives a loan under the Small Business Administration Act, as provided in section 1102 of the CARES Act (the Paycheck Protection Program (PPP)), defer the deposit and payment of the employer’s share of Social Security tax even if the loan has been forgiven (or partially forgiven) in accordance with paragraph (g) of section 1106 of the CARES Act, as amended by section 3 of the Paycheck Protection Program Flexibility Act of 2020 (PPP Flexibility Act)? (updated June 26, 2020)

Yes. The PPP Flexibility Act, enacted on June 5, 2020, amends section 2302 of the CARES Act by striking the rule that would have prevented an employer from deferring the deposit and payment of the employer’s share of Social Security tax after the employer receives a decision that its PPP loan was forgiven by the lender. Therefore, an employer that receives a PPP loan is entitled to defer the payment and deposit of the employer’s share of Social Security tax, even if the loan is forgiven.

Prior to the enactment of the PPP Flexibility Act, an employer that received a PPP loan was not permitted to defer deposit and payment of the employer’s share of Social Security tax after the receipt of the lender’s decision forgiving all or a portion of the employer’s PPP loan.

[1] “Deferral of employment tax deposits and payments through December 31, 2020,” IRS website, June 26, 2020, https://www.irs.gov/newsroom/deferral-of-employment-tax-deposits-and-payments-through-december-31-2020 (retrieved June 26, 2020)