30 Mar 2020 Payroll Tax Deferral and Business Tax Credits
Payroll Tax Deferral for Employers
The CARES Act economic stimulus package, passed on March 27, allows companies to defer paying their portion of Social Security payroll taxes (6.2%). Companies will still be withholding from paychecks and remitting the employee portion to the IRS. Only the employer half of payroll taxes can be deferred.
All businesses are eligible for payroll tax deferral except those benefiting from a forgiven Paycheck Protection Loan. We encourage businesses to pursue the Paycheck Protection Program loans first as it appears to be the best option.
How does the Payroll Tax Deferral work? The employer share of payroll taxes from March 27 through December 31, 2020, can be repaid in installments with 50% due by December 31, 2021 and 50% by December 31, 2022. Similarly, self-employed taxpayers can defer paying 50% of his or her self-employment tax for the same time period.
While this will increase the cash available to small businesses in the coming months, it is unclear how it will all come together in practice on 2020 payroll and income tax filings.
Employee Retention Tax Credit
In order to help businesses retain employees and keep them employed during this crisis, Congress has provided a refundable employer retention credit equal to 50% of qualified wages. This credit can be used to offset quarterly employment taxes. The qualified wages under this provision are limited to $10,000 per employee in 2020. The provision has several requirements defining qualified wages, qualified employees, and qualified employers. The credit applies to wages paid March 13-December 31, 2021.