The Internal Revenue Service (IRS) has issued guidance in the form of Frequently Asked Questions (FAQs) on the payroll tax deferral option included in the Coronavirus Aid, Relief and Economic Security (CARES) Act. Under the provision, employers may defer their share of social security payroll taxes and pay 50% of the deferred amount on Dec. 31, 2021, and the remaining balance on Dec. 31, 2022.
The guidance clarified the interaction of the payroll tax deferral provision and the Paycheck Protection Program (PPP). A taxpayer may defer payroll taxes until the PPP loan is forgiven; however, from that point the deferral of payroll taxes is no longer permitted. The guidance also clarified that a taxpayer may first take advantage of the payroll tax deferral provision, and then the employee retention tax credit, which is also included within the CARES Act. This will allow taxpayers flexibility when determining how to maximize the benefits of these new provisions.
To review the FAQs, click here.