CARES Act Payroll Tax Deferral

The CARES Act allows business owners to defer the deposit and payment of the employer's share of social security taxes.

Social Security taxes are at a rate of 6.2% on wages up to $132,900 per each employee for the calendar year. The CARES Act allows all business owners to defer payment of Social Security taxes that are owed for wage payments made after March 27th, 2020, through to the end of the calendar year. Instead of depositing these taxes on a next-day or semi-weekly basis, the due date for 50% of the taxes is deferred to Dec. 31st, 2021, with the rest of the 50% deferred until Dec. 31, 2022.

It is important to note that if the PPP (Paycheck Protection Program) loan has not yet been forgiven then the employer may defer the deposit payment of the employer's share of social security tax without incurring failure to deposit and failure to pay penalties.

This ability to defer deposits is in addition to the relief provided in Notice 2020-22 (failure to deposit penalty for not making deposits of employment taxes). Prior to determining whether the employer is entitled to the paid leave credits or employer retention credit, the employer is entitled to defer deposit and payment of the employer's share of taxes.

Self-employed individuals are also eligible to defer 50% of the social security tax from self-employment income. There is not a penalty for failure to make estimated payments for the 50% of Social Security tax on earnings from self-employed income during the payroll tax deferral period.

As we continue to monitor this crisis, XQ CPA will be making sure to stay up to date with these developments. If you have any questions or need help, make sure to contact us today!