Please note that this blog is based on laws effective on April 24, 2020 and may not contain later amendments. Please contact Cray Kaiser for most recent information.
We have been providing you many updates during the COVID-19 pandemic, with most centered around the Payroll Protection Plan and loan forgiveness. And rightly so! The prospect of tax-free funds to businesses is an extraordinary benefit. However, there is another provision available to employers and the self-employed that has not received as much attention: the deferral of employment tax deposits and payments.
What is the Deferral of Payroll Taxes?
For employers: Deposits and payments of the employer’s portion of the Social Security taxes can be deferred between March 27, 2020 and the date a business qualifies for PPP loan forgiveness or December 31, 2020 – whichever date is earlier. So, if you did not apply for or receive a PPP loan, the deferral can last through December 31, 2020.
For self-employed individuals: Payments of ½ of the Social Security portion of the self-employment tax can be deferred between March 27, 2020 and the date you qualify for PPP loan forgiveness or December 31, 2020 – whichever date is earlier. Again, if you did not apply for or receive a PPP loan, the deferral can last through December 31, 2020. You would also be eligible for relief if you employ others. This will reduce your quarterly estimated tax obligation.
What is the Deferral Period?
For both employers and self-employed taxpayers, 50% of the deferred amount is payable on or before December 31, 2021. The remaining amount is payable on or before December 31, 2022.
As long as the payments are made timely in accordance with the above, no interest or penalty will be charged.
What is CK Telling Clients?
- Okay, we know this isn’t as sweet as the PPP, but it’s something! Think about it this way: you have 30 employees with an average wage of $65,000. Given those parameters, your share of the social security burden is $120,900. If the pay is earned ratably through the year, then about 9/12 of the payroll for the year would be eligible for deferral (or 75%). Under that scenario, your approximate deferral could be around $90,675 (75% of $120,900). This is considered a short-term, interest-free loan that could be used any way you’d like in your operations. You do not need to track the funds like the PPP loan.
- Your payroll provider will not automatically apply this provision to your payroll. You must advise the provider that you are electing to defer these taxes.
- Remember to restart the payments once you receive word that your PPP loan is forgiven! Failure to do so will result in penalties.
If you have any questions about the new provisions related to COVID-19 relief, please call us at 630-953-4900. We are here to help!
CK OFFICE OPERATIONS
These are certainly trying times and we want to reiterate that Cray Kaiser is here for you. As things continue to evolve in light of the COVID-19 pandemic, we at CK are taking additional precautions for the benefit of our team members and our clients.
- No clients or guests will be allowed in our suite.
- All in-person meetings are cancelled. Instead, we will be utilizing phone calls and/or email to communicate with our clients.
- Our team members are being encouraged to work remotely. All staff are equipped with the appropriate technology and resources to continue to securely and confidentially serve you from home.
- We will no longer have in-person drop offs of accounting/tax data. Instead, please drop off any packages outside the office door of our suite in the box provided.
- All paper files, tax returns etc. will no longer be mailed by our office to you. We will be holding these items in our office to send to you at a later date.
CK PORTAL ACCESS
We want to remind our clients of our portal access and your ability to safely and securely share your information with our team. We ask that you email email@example.com to request your portal access. This will eliminate the need for you to drop off your tax information at our office.
Thank you for your patience and understanding during this challenging time. We wish you, your family, and your business health and safety. We will continue to support you as best as we can while keeping each other’s health a priority. If any changes occur during the course of the next few days, we will update our website.