Cash Flow Tip: Postpone Payment of Certain Federal Employer Payroll Taxes

The Coronavirus Aid, Relief, and Economic Security (CARES) Act includes an opportunity for employers to defer a portion of their payroll tax deposits.

The Benefit:

Postponing certain tax deposits for up to two years allows employers to conserve cash and provides additional liquidity.

Who is eligible:

All employers are eligible.

Types of Tax that can be deferred:

Employers can defer the 6.2% employer match of social security. Employers cannot defer the employee portion of Social Security or Medicare, the employer match of Medicare or federal income tax withheld.

Period covered:

If an employer has not received a Paycheck Protection Program (PPP) loan, it can defer the tax described above for deposits required for the period beginning March 27, 2020, and ending on December 31, 2020.

If an employer has received a Paycheck Protection Program (PPP) loan, it can defer paying the tax described above for the period beginning March 27, 2020, and ending on the date its PPP loan is funded.

When the deferred payment is due:

50% of the deferred taxes become due on December 31, 2021, and the remaining 50% is due on December 31, 2022.

What action is needed to take advantage:

No election or other notification to the IRS is needed. Contact your payroll service provider directly to start the process. We can assist you with implementation for in house payroll situations. Contact your Kirsch CPA Group relationship manager for more information.

Caution:  This taxpayer-friendly provision defers payment of taxes it does not eliminate them. Employers taking advantage of this benefit must plan carefully so that funds are available when the deferred payments come due.