The H.R. 748 Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by the house on March 27, 2020 a $2 trillion package that will provide essential relief to an economy struggling as a result of the coronavirus crisis. Section 2302 of the Act addresses deferral of employer social security tax payments.
What Does This Mean For Employers?
Businesses are permitted to defer their 6.2% employer share of social security tax due between the enactment date of March 27, 2020 and before January 1, 2021. The max deferral amount per employee is $8,537.40 (6.2% of wages up to the social security wage base of $137,700 = $8,537.40). The deferred tax amount would have to be paid over the following two years: half by Dec. 31, 2021, and the other half by Dec. 31, 2022. Also, an employer is allowed to defer their employer social security portion prior to utilizing the employee retention and FFCRA credits against employment taxes. For answers to FAQ by IRS read more here.
An employer who has one employee earning $5,000 a month ($60,000 annually) would be able to defer $310 a month for a total of $2,790 the next 9 months.
$5,000 x 6.2% = $310
$310 a month x 9 months = $2,790
How is the deferral reported?
The IRS issued a draft version of Form 941, Employer’s Quarterly Federal Tax Return on April 29, 2020. The new form allows the ability to report the amount of deferred tax.
Exception - What if I am also receiving the Paycheck Protection Program (PPP) loan?
It is important to note that an employer that have a Paycheck Protection Program (PPP) loan forgiven under section 1106 or 1109 of the CARES Act has to stop deferring their payments once they receive acknowledgment of forgiveness.
In regard to the amount of the deposit and payment of the employer's share of Social Security tax that was deferred before the date that the PPP loan is forgiven, this continues to be deferred and will be due on the applicable dates.
How can I defer my employer portion of Social Security taxes within Wave?
To utilize this portion of the CARES Act and defer your employer social security taxes within Wave, you will be able to do so by going to the Payroll menu on the left-hand side:
- Click COVID-19
- Click Defer social security
Once you opt in, you will see the deferral applied to your tax liabilities starting with your next approved payroll with tax liabilities due between March 27, 2020 and before January 1, 2021. You will be able to see the amount deferred as it accumulates on the COVID-19 page where you opted in to this program.
You will also see this applied to your tax liabilities within the Taxes page under the Payroll tab.
Wave is hard at work to continue to improve this feature. This page will be updated as the feature is updated.
Where can I view my deferred taxes in Wave?
As well as viewing your total deferred amount on the COVID-19 page, you will be able to see the accumulating amount of employer Social Security Tax by going to the Payroll tab in the left-hand menu:
- Click Taxes
- Click Accumulating Taxes
You will see the Social Security Tax Deferral listed with a notice detailing how this amount is to be paid. As the due date for the appropriate portion of your deferral approach, this will be moved into the Due Taxes part of the Taxes page.
How is the deferral bookkept within Wave?
Your Payroll Liabilities account will hold a credit balance for the amount of accumulated deferred taxes, which will only zero out once the final payment is made in December 2022.
For more information on bookkeeping your deferral, please see:
What about Contractors?
Self-employed individuals are also permitted to defer half of their applicable social security taxes up to the annual social security wage base and for the same time period, see section 2302(b)(1) of the CARES Act.