The Coronavirus Aid, Relief, and Economic Security (CARES) Act creates a payroll tax deferral period, giving employers the ability to delay payment of certain payroll taxes. Many businesses negatively impacted by COVID-19 are embracing this relief– especially small businesses. Here’s how the deferral works.
What are employment taxes?
As an employer, you’re required to collect a share of employee wages to pay to the IRS. These payments fall into several categories, including federal income, Social Security, and Medicare. The CARES Act specifically references the employer portion of Social Security payroll taxes (also known as employment taxes). The current rate of this tax is 6.2% of employee wages.
How does the payroll tax deferral work?
The CARES Act gives you the option to delay making Social Security employment tax payments that would have otherwise been due between March 27 and Dec. 31, 2020. This is called the payroll tax deferral period.
You have to pay 50% of these taxes to the IRS by Dec. 31, 2021. Then, the remaining 50% is due Dec. 31, 2022. You don’t have to make a special election to defer employment tax payments. You can simply stop making the payments.
Who’s eligible for this deferral?
Employers of any size can take advantage of the payroll tax deferral. This also includes self-employed individuals and tax-exempt organizations organized under IRC 501(c).
Your business is still eligible for deferring employment taxes if you receive a loan through the Paycheck Protection Program (PPP). However, your business isn’t eligible for this relief if you receive a PPP loan and the loan is forgiven under the CARES Act. As soon as your PPP lender grants your loan forgiveness, you must stop deferring employment tax payments.
And, this payroll tax deferral can be used along with the employee retention credit.
What if I employ myself?
If you’re a self-employed individual, you can delay paying 50% of Social Security taxes on the net earnings from your self-employment income.View a list of frequently asked questions about the payroll tax deferral on the IRS’ website here.
Have questions about employer payroll taxes? Let’s talk!