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IRS Clarifies Availability of CARES Tax Deferral with PPP Loan

April 16, 2020

Provided by Ahola Payroll & HR Solutions

On April 10, the IRS released a set of frequently asked questions regarding the availability of CARES Act Tax Deferrals and the Paycheck Protection Program (PPP). The IRS does indeed clarify that employers that take loans under the PPP are eligible to defer payments of the employer’s portion on Social Security tax through the date the lender issues a decision to forgive the loan, in accordance with the CARES Act.

Prior to this update from the IRS, taxpayers who take covered loans under the Paycheck Protection Program (PPP) and whose loans are forgiven under the terms of the CARES Act were not identified as eligible for the deferral described above.

Official IRS Update
All employers may defer the deposit and payment of the employer’s share of social security tax. However, employers that receive a loan under the Small Business Administration Act, as provided in section 1102 of the CARES Act (the Paycheck Protection Program (PPP)), may not defer the deposit and payment of the employer’s share of social security tax due on or after the date that the PPP loan is forgiven under the CARES Act.

Employers who have received a PPP loan, but whose loan has not yet been forgiven, may defer deposit and payment of the employer’s share of social security tax that otherwise would be required to be made beginning on March 27, 2020, through the date the lender issues a decision to forgive the loan in accordance with paragraph (g) of section 1106 of the CARES Act, without incurring failure to deposit and failure to pay penalties. Once an employer receives a decision from its lender that its PPP loan is forgiven, the employer is no longer eligible to defer deposit and payment of the employer’s share of social security tax due after that date. However, the amount of the deposit and payment of the employer’s share of social security tax that was deferred through the date that the PPP loan is forgiven continues to be deferred and will be due on the “applicable dates,” as described below:

  1. On December 31, 2021, 50 percent of the deferred amount; and
  2. On December 31, 2022, the remaining amount.
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