IRS Provides More Guidance for Payroll Tax Deferral, includes Businesses that Qualify for Loan Forgiveness under Paycheck Protection Program

The IRS recently issued additional guidance regarding the deferral of employer payroll taxes as provided under the CARES Act.  The Act allows for a payment deferral of the 6.2% employer portion of Social Security taxes from the date of enactment (March 27, 2020) through December 31, 2020.  The deferred payment is postponed, with 50% due by December 31, 2021, and the remaining 50% due by December 31, 2022.  It is important to note that the deferral only applies to the employer portion of Social Security taxes and does not impact the requirements to deposit the employee portion of such taxes.

The Act states that the deferral would not apply to any business which had indebtedness forgiven under the Paycheck Protection Program (“PPP”).   This created some confusion regarding whether an employer that had applied for the PPP could be eligible for the payroll tax deferral, leading many employers to forego participating in the payroll tax deferral program until additional guidance was available.

IRS Guidance for Employers Who Received Paycheck Protection Program Loan

The additional guidance from the IRS comes in the form of responses to Frequently Asked Questions (FAQs) regarding the implementation of the payroll tax deferral program and the coordination with the loan-forgiveness provisions of the PPP.  The guidance states that employers who have received a PPP loan may defer payment of the employer portion of Social Security taxes, as provided under the CARES Act, until the date it receives a decision from its lender that its PPP loan is forgiven.  After that date, the employer is no longer eligible to defer payment of the employer’s share of Social Security taxes.  However, the guidance clarifies that the amount of employer Social Security taxes that was deferred through the date that the employer is notified that the PPP loan is forgiven remains deferred and will be due on the applicable dates (December 31, 2021, and December 31, 2022).

The guidance does not explicitly state whether these rules apply to PPP loan amounts that are only partially forgiven.  Presumably, there will not be a distinction and these same rules would apply even for partial loan forgiveness, though further guidance may be provided to clarify this point.

What does this mean for you?

Under the CARES Act, and subsequent guidance provided by the Treasury, the lender must decide on the PPP loan forgiveness within 60 days from the time that the employer submits a request to the lender.  That request would be made following the 8-week covered period beginning on the date of origination of the PPP loan.  Therefore, even if you ultimately qualify for PPP loan forgiveness, there still may be significant time between now and when you have been notified by the lender that the loan has been forgiven to take advantage of this payroll tax deferral, which could provide significant cash flow planning opportunities for you and your business.

For further information on the payroll tax deferral and how you may take advantage of this opportunity, please contact your Windham Brannon representative or email us at

The link to the IRS FAQs is provided here.


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