The Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law by President Trump on March 27th, 2020 established a deferral program of certain payroll taxes for employers affected by the COVID-19 (Coronavirus) pandemic.
- Payment of employer’s portion of social security taxes and certain railroad retirement taxes from March 27, 2020 through December 31, 2020 can be deferred and paid in two installments over two years. Deferred amounts would be due on December 31, 2021 and December 31, 2022.
Payroll Taxes Eligible for Deferral
- Employer portion of FICA taxes under IRC Section 3111(a)
- 6.2% of wages as defined in IRC Section 3121(a)
- Employer and employee representative portion of Railroad Retirement Taxes (that are attributed to employer FICA rate) under IRC Section 3211(a) and Section 3221(a)
- Half of SECA tax liability under IRC Section 1401(a)
- 12.4% of the amount of self-employment income for the taxable year
Calculation of Deferral
- All social security taxes incurred by the employer or 50% of social security taxes incurred by self-employed individuals are qualified for the deferral.
- Deferral is available for taxes incurred March 27th through December 31st, 2020.
- For self-employed businesses, for purposes of calculating estimated payments, the 50% deferred taxes will not be included in the tax calculation for years in which the payments for the deferral are made (2021 & 2022).
How to Defer the Tax
- The second quarter 941 for 2020 will be revised to report the deferred taxes.
- More information is to be provided on how to report those taxes which were deferred that relate to the first quarter of 2020.
- There is speculation that the tax will be deferred on the individual income tax return for self-employed individuals.
- It is still unclear as to how the tax will be reported and paid in 2021 and 2022.
- We will continue to update this blog as more information becomes available.
Who Cannot Take Advantage of the Deferral
- The employer can participate in the Small Business Administration’s Paycheck Protection Program, but if any debt is forgiven, the employer is no longer eligible for the deferral from the time the loan forgiveness decision has been given.
- The employer would still be able to pay the already deferred amount in two installments due on December 31, 2021 and 2022.
If you have questions regarding the payroll tax payment delay or the payroll tax deferral, please reach out to your personal Sciarabba Walker contact or email us at firstname.lastname@example.org.