The Coronavirus Aid, Relief, and Economic Security (CARES) Act allows taxpayers to defer paying the employer portion of Social Security taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022:
- Employers can defer payment for the employer portion of payroll taxes incurred between the date the CARES Act is enacted, March 27, 2020 through December 31, 2020.
- If deferred, the employer would instead pay 50% of this amount by December 31, 2021, and the remaining 50% by December 31, 2022.
- The eligible payroll taxes are the employer’s portion of Social Security taxes (6.2%). Payroll taxes are shouldered by workers and employers: Each pays 6.2% toward Social Security and 1.45% toward Medicare.
- Employers are still on the hook for paying the 1.45% of wages that goes toward funding Medicare. In addition, the payroll tax deferral does not apply to federal income tax withholding, or the employee’s portion of Social Security tax.
- Self-employed taxpayers can also defer the employer’s portion of Social Security taxes in the self-employment tax (i.e., 50% of the 12.4% tax).
- There is no dollar cap on the wages that are counted in calculating the taxes that may be deferred.
- While deferring payroll taxes in the present may provide businesses with cash on hand, they must consider whether paying those taxes later might come back to bite them.
- At first blush, deferring payment on 6.2% of wages may not sound like much, yet it adds up over time. For examples, a small business that pays an employee $1,000 in weekly wages could save $2,418 over the remainder of the year. This allows the employer to have access to those funds to be able to pay employees.
- The payroll tax deferral is not available to a taxpayer that obtains a Small Business Act loan under the Paycheck Protection Program established by the CARES Act if the loan is later forgiven.
*Please note that as information is updated and modified, terms and conditions are subject to change.