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IRS Issues FAQ on Deferral of Deposit and Payment of Employment Taxes Provided by the CARES Act

The IRS has issued Frequently Asked Questions on the deferral of the deposit and payment of employment taxes that is provided by the CARES Act.

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Insights  <  IRS Issues FAQ on Deferral of Deposit and Payment of Employment Taxes Provided by the CARES Act

The IRS has issued Frequently Asked Questions on the deferral of the deposit and payment of employment taxes that is provided by the CARES Act.

The IRS has issued Frequently Asked Questions on the deferral of the deposit and payment of employment taxes that is provided by the CARES Act.

Under the CARES Act, employers may defer the deposit and payment of the employer’s share of social security taxes, and self-employed individuals may defer payment of certain self-employment taxes. However, the statute provides that while all employers are generally eligible for the deferral, the deferral provisions do not apply to a taxpayer who has had loan forgiveness from a Paycheck Protection Program Loan (PPP). Prior to the release of the FAQ, it was unclear whether taxpayers who have applied for and received a PPP loan that has not yet been formally forgiven would be eligible for the payroll tax deferral and/or be subject to some form of a “clawback”/recapture upon forgiveness. Fortunately, the IRS provided some much-needed taxpayer friendly relief in the FAQ, and is allowing taxpayers to take advantage of the deferral provisions UNTIL the employer receives a decision from the lender that the PPP loan is forgiven:

  1. Can an employer that has applied for and received a PPP loan that is not yet forgiven defer deposit and payment of the employer’s share of social security tax without incurring failure to deposit and failure to pay penalties?

Yes. 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 in accordance with paragraph (g) of section 1106 of the CARES Act, 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. However, 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 “applicable dates,” as described in FAQs 7 and 8.

The entirety of the FAQ, which provides some other helpful information, can be found by clicking here.

 

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Disclaimer:  The contents of this resource are for general informational purposes only. While every effort has been made to ensure its accuracy, the information is provided “as is” and no representations are made that the content is error-free. We have no obligation to update any content, comments or other information for retroactive or prospective interpretations or guidance provided by regulators, financial institutions or others. The information is not intended to constitute legal advice or replace the advice of a qualified professional. There are areas of the CARES Act where additional clarification from the Treasury Department and the SBA is needed. Your judgment and interpretation of the act may be needed. Users should consult with their legal counsel and representatives of the lending institution regarding the proper completion of their application and supporting documentation.

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