All Employers Can Defer Employment Tax Deposits Until Paycheck Protection Program Loan is Forgiven

BDO Insight

• Employers’ 1.45% Medicare tax cannot be deferred under the CARES Act and must be deposited unless it is being used to offset payroll tax credits allowed under the CARES Act or the Family First Coronavirus Response Act.
•  There is no application form or approval procedure to use the payroll tax deposit deferral. Rather, employers simply do not remit the amount that would otherwise be due. IRS will update the Form 941 for the second quarter of 2020 to track the deferred deposits.
• While not addressed by the IRS in the recent FAQs, it appears that an employer who paid their social security tax liabilities due on or after March 27 could take advantage of the full deferral amount allowed by recovering the previously paid, but not required, amounts from other 2020 federal tax deposits. Employers using third party payroll-providers should discuss system capabilities and procedures for taking advantage of the allowed deferral and the possibility of recovering any previously paid amounts that were eligible for deferral.

BDO Insight

To maximize the payroll tax deferral opportunity, employers with PPP loans may wish to consider delaying their request for PPP loan forgiveness until December 31, 2020. PPP loans are for two years, at 1% interest and do not require any payments during the first six months. Employers can request PPP loan forgiveness for qualified payroll costs and certain other expenses incurred during an eight-week period beginning on the date they receive the loan proceeds (lenders must disburse proceeds within 10 days after the loan is approved). Lenders generally have up to 60 days to consider the loan forgiveness.  There does not appear to be any time limit for when an employer could submit its request for loan forgiveness, and many will wait until after June 30, 2020, to take advantage of provisions that maximize loan forgiveness.

For example, if an employer submits a request for loan forgiveness on July 15, 2020, the lender could forgive the loan anytime through September 15, 2020. Assume the loan is forgiven on August 15, the employer could no longer defer payroll taxes from August 15 through December 31, 2020. But if the employer does not request loan forgiveness until December 15 (and assuming the lender does not forgive the loan until early 2021), the employer could continue deferring payroll taxes through December 31, 2020.