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In a Frequently Asked Questions (FAQs) issued on April 10, the IRS clarified the interaction between the employer relief provisions in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the loan forgiveness provision for employers that receive a Paycheck Protection Program (PPP) loan.

Section 2302 of the CARES Act permits employers to defer the deposit and payment of the employer’s portion of social security taxes and certain railroad retirement taxes imposed under IRC § 3111(a). According to the FAQs, employers that receive a PPP loan may not defer the deposit and payment of the payroll taxes that is otherwise due after the lender forgives the PPP loan.

The FAQs also clarify that an employer that has received a PPP loan that has not yet been forgiven can defer deposit and payment of the employer’s share of payroll taxes without incurring penalties for failure to deposit or failure to pay. The taxes can be deferred through the date when the lender issues a decision to forgive the PPP loan pursuant to CARES Act § 1106(g). The employer ceases to be eligible to defer the taxes as of the date of the lender’s decision to forgive the PPP loan.

The employer’s share of the employment taxes deferred prior to the PPP loan forgiveness must be deposited and paid by the following dates (referred to by the IRS as the “applicable dates”) in order to avoid penalties:

  • December 31, 2021: 50% of the deferred amount
     
  • December 31, 2022: the remainder of the deferred amount

Finally, the FAQs explain that an employer is entitled to defer deposit and payment of the employer’s share of payroll taxes before determining whether the employer is entitled to the following credits:

  • Paid leave credits (Families First Coronavirus Relief Act §§ 7001 and 7003)
     
  • Employee retention credit (CARES Act §2301)
     

Employers can also defer the taxes before determining the amount of employment tax deposits that it can retain in anticipation of the credits, the amount of any advance payments of the credits, or the amount of any refunds with respect to the credits.

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