The CARES Act offers a payroll tax deferral relief. Your business can defer the 6.2% employer portion of the Social Security tax. That is a component of FICA tax on the first $137,700 of an employee’s 2020 wages. Note: That is for wages paid during the deferral period. The deferral period began on the 3/27/20 and will end on 12/31/20.
Your business must then pay the deferred payroll tax amount in two installments:
* Half of the deferral amount you must pay in by 12/31/21
* The remaining half you must pay in by 12/31/22.
This payroll tax deferral deal is available to all employers, with no requirement to show any specific COVID-19-related impact.
If you self-employ, you can defer half of your liability. This is for the 12.4% Social Security tax component of the self-employment (SE) tax for the deferral period. The deferral period began on 3/27/20 and will end on 12/31/20. You must then pay the deferral of SE tax amount (we don’t yet know how to calculate that amount) in two installments:
* Half by 12/31/21
* The remaining half by 12/31/22.
Warning: Forgiveness of PPP loans precludes eligibility for payroll tax deferral privilege. The payroll tax deferral privilege is unavailable to some. Those excluded are: any small employer, sole proprietor, or self-employed individual receiving forgiveness of SBA loans under Payment Protection Program (PPP) offered by the CARES Act.
The PPP has $349 billion of funding with an expectation of more funding coming. PPP loans are almost certainly more valuable than the payroll tax deferral deal. The rules allowing PPP loans forgiveness are very liberal. So, go for the forgivable PPP loan option if you can. For details on PPP loans and forgiveness, see here. And don’t, forget the CARES Act offers a payroll tax deferral relief.
