Good News for PPP Loan Recipients Regarding Deferral of Payroll Taxes

The IRS released FAQs on Sec 2302 of the CARES Act, Delay of Payment of Employer Payroll Taxes. This provision generally provides that employers may defer the deposit and payment of the employer’s portion of social security taxes and certain railroad retirement taxes, that would otherwise be required to be made during the period beginning on March 27, 2020, and ending December 31, 2020. The taxes deferred must be deposited by December 31, 2021 (50% of the deferred amount) and by December 21, 2022 (the remaining amount).

The CARES Act has a limitation on the deferral benefit, providing that the deferral provisions do not apply to any taxpayer if such taxpayer has had indebtedness forgiven with respect to a PPP loan.

FAQs 1 and 4 now clarify that 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, 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. 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 dates mentioned above.