If you’re an employer, the federal government is currently allowing you to defer Social Security tax payments you normally pay for having employees. You will be eligible to defer the payment of these tax bills throughout the remainder of 2020. The program was put into effect on March 27 as part of the COVID-19 relief bill called the CARES Act.
Every quarter, you must pay Social Security taxes for the employees you have on payroll. Each payment has two parts: the amount that is withheld from employees and the amount that you as an employer have to pay. Under the CARES Act, you are now able to defer strictly the employer portion of these taxes. For self-employed individuals not running payroll, this will apply to your self-employment taxes.
How do I defer my tax payments?
No action is required on your part yet. The IRS Form 941 for April to June 2020 will be updated to reflect this. For applicable taxes that occurred after March 27th and before March 31st, the IRS will provide an update on how to defer these taxes through either a credit or refund on what was already paid.
I’m self-employed and don’t have payroll. How does this program apply to me?
Self-employment tax can be deferred as well so long as your fiscal year ends between March 27 and December 31, 2020. If you’re self-employed, you are eligible to defer 50% of the Social Security tax you must pay based on your net earnings in 2020. More information on how this will work will be made available closer to tax filing.
When will I have to pay the deferred tax payments?
You will have to pay 50% of your tax bill by December 31st, 2021 with the remainder paid by December 31st, 2022.
What if I have a PPP loan I’m using for payroll?
If you have received forgiveness on your PPP loan before June 30th, 2020, this program will not be available to you and you will still be responsible to pay those taxes with penalties incurred if you do not pay them.
If you currently have a PPP loan you will be applying for forgiveness on, you can defer your taxes until you’ve either received forgiveness or had your application rejected. If you’ve had your application for forgiveness approved, you will have to pay the taxes you had deferred immediately. If you’ve been rejected, you will have to pay the deferred taxes under the standard terms of 50% before December 31st, 2021 and the remainder paid by December 31st, 2022.
Can I defer my taxes and still pursue employee retention tax credits?
Yes, if you are deferring your tax payments, you can still apply for the employee retention credits. You will not be penalized for not paying the tax bill while you figure out what you are eligible to receive as a retention credit.