Note that all Sheehey guidance regarding COVID-19 is subject to change, as the legal landscape is evolving rapidly. Please note the date of publication for this bulletin, and be aware that things may have changed since then. Please check our COVID-19 landing page for the most up-to-date posts and contact us with any questions.
The IRS released guidance regarding payroll tax deferral under the CARES Act for Paycheck Protection Program (“PPP”) loan recipients. Under the CARES Act, all employers, except those who receive PPP loan forgiveness, may defer depositing and paying their share of Social Security taxes from March 27, 2020 through December 31, 2020. Taxes will still accrue during this deferral period and will be due over the following two years, with 50% of the deferred taxes due on December 31, 2021 and the remaining amount due on December 31, 2022.
The new IRS guidance clarifies that there is some payroll relief to employers in the PPP and to self-employed individuals. Pursuant to the new guidance, employers who receive PPP loan forgiveness may defer depositing and paying their share of Social Security tax (or half the Social Security portion of their Self-Employment tax) from March 27, 2020 through the date on which they receive notice that their loan is forgiven (“Notice Date”). The deferred amount for both self-employed individuals and employers will be due over the following two years as described above. Any Social Security or Self-Employment taxes that the employer owes after the Notice Date must be deposited and paid in accordance with the employer’s normal payroll tax deposit and payment schedule.
As a practical matter, employers will likely receive these forgiveness notices in the middle of a payroll cycle. Based on the IRS guidance, employers may split their tax obligations within a payroll period into those associated with wages earned before and after the Notice Date. All payroll taxes associated with wages earned before the Notice Date may be deferred; all payroll taxes associated with wages earned after the Notice Date must be deposited and paid on the next due date. Alternatively, employers may choose to simply deposit and pay all taxes associated with the affected pay cycle instead of splitting up the obligation.
There is still limited guidance regarding the PPP and particularly the loan forgiveness process and every borrower should consult their lender for any specific requirements (e.g. necessary documentation). Borrowers should expect the SBA, IRS, and other federal agencies to issue more rules and procedures in the coming weeks and months.
Have more questions about the PPP, the CARES Act, or how your small business can navigate the COVID-19 crisis? Our attorneys are here to help. Contact us at [email protected]
