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Businesses May Defer Social Security Tax Up Until PPP Loan is Forgiven

UPDATED 6.5.2020: On June 5, 2020, the President signed into effect the Paycheck Protection Program (PPP) Flexibility Act, which would provide greater flexibility in how businesses may spend PPP loan proceeds. This includes allowing businesses participating in the PPP loan to defer social security taxes without limitation. The purpose of PPP and the payroll tax deferment was to provide businesses with capital to weather the crisis. Delay of payment of employer payroll taxes and receiving the PPP loan should not be considered double-dipping.

Read more about the PPP Flexibility Act. >>

Prior to the passing of the PPP Flexibility Act, the below guidance was in effect.

ORIGINAL POST 4.28.2020: The AAFCPAs would like to make clients aware that the IRS recently released answers to Frequently Asked Questions on the deferral of employment tax deposits as provided by Section 2302 of the CARES Act. These FAQs make clear that “employers who received a paycheck protection program (PPP) loan may not defer the deposit and payment of the employer’s share of Social Security tax that is otherwise due AFTER the employer received a decision from the lender that the loan was forgiven.” In other words, businesses who receive PPP loans may defer social security tax payments (6.2%) up until the point in time you receive the decision that your loan is forgiven.

This deferral began on March 27, 2020 and will continue through the date the lender issues a decision to forgive the loan in accordance with paragraph (g) of Section 1106 of the CARES Act. There will be no penalties for failure to deposit or failure to pay up until such date the decision is received.

This will serve to relieve employers of most of the burden of paying payroll taxes during the 8-week period given to spend the funds received from a PPP loan, as the debt forgiveness won’t take place until after that period has concluded.

This is a significant update from the original program, which seemed to indicate that those receiving PPP funds could not participate in the deferral program. AAFCPAs advises clients to contact your payroll provider to start taking advantage of this benefit.

Learn more about the Payroll Tax Credit and Other COVID-19 Payroll-Related Benefits >>

If you have any questions please contact: Brittany Besler, MBA, CPA, Esq. at 774.512.9001, bbesler@nullaafcpa.com; David McManus, CPA, CGMA at 774.512.4014, dmcmanus@nullaafcpa.com; or your AAFCPAs Partner.

About the Authors

Brittany Besler
Brittany possesses a unique combination of tax, legal, and business backgrounds, and is a valuable member of AAFCPAs’ Tax practice. She provides tax planning, research, and compliance solutions for corporations, partnerships, nonprofits, individuals, estates & trusts. Brittany advises businesses and individuals on various federal, state, local and foreign tax-related issues, including counseling clients on the consequences of new and updated tax laws. She assists clients in the creation of appropriate and optimal organizational structures, and advises on tax planning and tax exemption compliance. She advises newly-formed and well-established nonprofit clients on meeting compliance requirements of various government agencies, including the IRS rules on fundraising and political activities.
David McManus CPA
Dave is a Tax Partner at AAFCPAs, a 240 person CPA and consulting firm with offices in Boston, Westborough, and Wellesley, MA. He provides assurance, tax advisory, and consulting solutions to privately-held commercial companies, including: multinational manufacturing & distribution companies, real estate developers, auto dealerships, as well as high tech, bio tech, cannabis, and renewable energy companies.