IRS Updates Guidelines to Allow Deferral of Employer Social Security Tax

Following the passage of the Paycheck Protection Program Flexibility Act of 2020 (PPPFA), the Internal Revenue Service (IRS) has updated their FAQ regarding an employer’s ability to defer Social Security taxes. Now, even employers that have received partial or full forgiveness of their PPP loan may defer the payment of Social Security taxes due under section 3111(a) of the Internal Revenue Code. Employers who did not receive or apply for a PPP loan may similarly defer, and self-employed individuals may defer 50% of the total tax on their net earnings from self-employment income.

The deferral applies to the employer’s portion of Social Security tax that they would otherwise be required to deposit with the federal government for the period starting on March 27, 2020 and ending December 31, 2020. In order to avoid a failure to pay penalty, 50% of the deferred amount must be deposited by December 31, 2021 and the remainder must be paid by December 31, 2022.

This tax postponement serves as another attempt by the U.S. government to promote the retention of employees at small businesses with a current deficiency in cash flow. Because of the PPPFA, the IRS has allowed small businesses that have already been gifted PPP funds to even further reduce their expenditures during the pandemic-affected 2020 fiscal year.