On June 5, 2020 President Trump signed the Paycheck Protection Program Flexibility Act (PPPF). This highly anticipated guidance provided businesses with some much-needed clarification of several items included in the recently passed CARES Act. Additionally, the PPPF contained some favorable changes to many of the CARES Act provisions.
Section 2302 of the CARES Act allows employers to defer the deposit and payment of the employer’s portion of social security taxes that would have been required to be deposited during the period March 27th through December 31st. The taxes deferred must be repaid in two equal installments – half by December 31, 2021 and half by December 31, 2022. Thus, deferring the payment of eligible payroll taxes through the end of the year has the potential to create significant cash flow for many businesses. Further, the PPPF removed the provision in the CARES Act that prevented businesses who had received notification that their PPP forgiveness application had been approved from deferring their payroll taxes beyond that date. Under the new rules, all businesses are eligible to take advantage of this provision through December 31, 2020.
Businesses wishing to take advantage of the deferral need not make any special kind of election to be able to defer deposits and payments of the employer’s portion of social security taxes. Form 941 (Employer’s Quarterly Federal Tax Return) will be revised for the second quarter of 2020. The revised form will include a line reflecting the deferred deposits. Additionally, the instructions to Form 941 are also being revised and will contain additional information and instructions related to such deferral.
If you were eligible for this deferral but did not take advantage of it previously, there is no provision allowing a refund of previously deposited taxes that were otherwise eligible for deferral. However, it appears that businesses can treat prior deposits made during the quarter as first being allocable to employment taxes other than the employer’s portion of social security tax. Even though businesses depositing taxes using the EFTPS system have to allocate their deposits to the different subcategories of employment taxes, the IRS doesn’t use that information in comparing the total liabilities reported on the Form 941 to the total deposits made.
To take advantage of this deferral, coordination with your payroll company will be of utmost importance. We encourage you to consult with them to understand what they may need to ensure you receive the maximum allowable benefit. Please consult your WG advisor for additional information or if you have any questions.