Defer Paying Certain Federal Payroll Taxes

Kirsch CPA Group

Jul 01, 2020

Thanks to a provision included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, your business can defer paying certain federal payroll taxes. This privilege applies to the employer’s 6.2% share of the Social Security tax component of FICA tax owed on the first $137,700 of an employee’s 2020 wages.

The deferral privilege applies to federal payroll tax deposits and payments that would otherwise be due during the deferral period. The deferral period began on the March 27, 2020 (the date the CARES Act became law) and will end on December 31, 2020.

The deferral privilege is available to all employers (small and large) for eligible payroll taxes on wages paid to all employees, including wages paid to owners who are employed by their corporations. There’s no requirement to show that the business has been adversely affected by the COVID-19 crisis.

A business must pay in the deferred payroll tax in two installments:

50% of the deferred amount by December 31, 2021, and
The remaining 50% by December 31, 2022.

Important: The IRS will revise Form 941, “Employer’s Quarterly Federal Tax Return,” starting with the version for the second quarter of 2020, to allow employers to take advantage of this payroll tax deferral relief.

Extending Federal Income Tax Returns Past July 15

As this was written, you must follow the normal procedures to extend federal income tax return filing deadlines past July 15. For example, you can extend your 2019 personal federal income tax return to October 15 by filing Form 4868 with the IRS by July 15. Business entities can also extend their federal income tax returns past July 15, if a further extension is allowed, by filing Form 7004 with the IRS by July 15.

Important: Extending a return past July 15 does not extend the due date for paying any tax that will be due with that return when it’s eventually filed. You could still owe interest and penalties for taxes not paid by the July 15 deadline.

Does PPP Loan Forgiveness Prevent Your Business from Deferring Payroll Tax?

Good news! The Paycheck Protection Program (PPP) Flexibility Act of 2020 was signed into law on June 5. The new law repeals a provision of the Coronavirus Aid, Relief, and Economic Security (CARES) Act that could disallow the payroll tax deferral privilege for some taxpayers that receive PPP loans that are later forgiven.

So, the payroll tax deferral privilege is now fully available to taxpayers that benefit from forgiven PPP loans. Apparently, the same is true for self-employed individuals who take advantage of the self-employment tax deferral privilege and benefit from forgiven PPP loans.