The Smarter Startup

Should You Defer Payroll Taxes If You Apply for a PPP Loan?


Important clarifications in Burkland's Covid-19 Resource Center on payroll taxes for startups who applied for PPP loans.

The employer payroll tax deferral provision under the CARES Act allows employers to defer their portion of the Social Security payroll tax (6.2% up to a maximum wage base of $137,700 per employee for 2020) on wages from March 27, 2020, through December 31, 2020. This benefit applies to employers of all sizes and the amounts deferred must be repaid in equal installments by December 31, 2021, and by December 31, 2022. There is no interest on the deferred amount. Most startups are asking, should we defer payroll taxes if I already applied for a Paycheck Protect Program loan?

The payroll tax deferral provision does not apply if the employer obtained loan forgiveness under a PPP loan. This has created uncertainty because many businesses have not received a PPP loan or are not sure if they can obtain the loan. 

Defer Payroll Taxes Clarification from IRS

On April 10, the Internal Revenue Service (IRS) published responses to frequently asked questions with respect to the payroll tax deferral provisions of the CARES Act. 

Deferral of employment tax deposits and payments through December 31, 2020 

The IRS helpfully clarified that employers who receive a PPP loan, but whose loan has not yet been forgiven, may defer deposit and payment of their share of Social Security tax up to the date of forgiveness, and then continue the deferral of such amounts up to the repayment dates (half by December 31, 2021, and the balance by December 31, 2022). 

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 their share of social security tax due after that date.