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Good News-Clarification on Deferral of Payroll Taxes and Applying for the PPP Loan, and Unemployment Benefits Open up to Self-employed Workers.


As we watch the political process focus this week providing more funding for the Payroll Protection Program loans, as well as other loan programs and relief, it is important for employers to consider other aspects of the CARES Act in terms of preserving cash flow.  

When the CARES Act passed on March 27, 2020, one of the ways to conserve cash was a provision to defer the employer’s portion (6.2%) of the Social Security payroll tax (and certain railroad retirement taxes) on wages paid from March 27, 2020 through December 31, 2020. The amount deferred under this provision is due 50% by December 31, 2021 and the remaining 50% by December 31, 2022. However the deferral is not available if the business receives a Payroll Protection Program (PPP) loan and then has all or a portion of the loan forgiven under the CARES Act. It was unclear how the timing of the forgiveness worked with the payroll tax deferral until a FAQ issued by the IRS provided clarity.  

The IRS FAQ clarifies that a business that applies for the loan can defer the employer’s share of Social Security tax until “an employer receives a decision from its lender that its PPP loan is forgiven.” This is good news as the forgiveness decision from a lender may not occur until September or October of this year as a practical matter. Once an employer receives a decision from its lender that its PPP loan is forgiven, the employer is no longer eligible to defer deposit and payment of the employer’s share of Social Security tax due after that date.

The IRS FAQ also explained that Form 941 for employers for the second quarter of the year will be revised and information will be provided in the near future to instruct employers how to reflect the deferred deposits and payments otherwise due on or after March 27, 2020 for the first quarter of 2020 (January – March 2020).

Also note that the IRS FAQ made clear that self-employed individuals “may defer the payment of 50 percent of the Social Security tax on net earnings from self-employment income” from March 27, 2020 through December 31, 2020 with the same payment dates and restrictions listed above regarding PPP loan forgiveness.

The CARES Act had provisions that dramatically expand eligibility for unemployment assistance, increased the weekly benefit amount by $600, and extended the time available for unemployment assistance by 13 weeks. Last Saturday, April 18, the Washington State Employment Security Department system was updated to enable that expansion so that individuals such as self-employed workers, independent contractors and other workers who are not traditionally eligible will now be able to apply for unemployment benefits. People should also know that they will be paid retroactive to their date of eligibility. For more information and updates, click here.  

Berntson Porter is here to help you navigate these unprecedented times. Visit our online Resource Center for up-to-date information about COVID-19 legislation that impacts you and your business.