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.
In this article
- What Does This Mean For Employers?
- Calculation Example
- How is this deferral reported?
- Exception - What if I am also receiving the Paycheck Protection Program (PPP) loan?
- How can I defer my employer portion of Social Security taxes within Wave?
- Where can I view my deferred taxes in Wave?
- How is the deferral bookkept within Wave?
- What about Contractors?
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.
What if I am also receiving a Paycheck Protection Program (PPP) loan?
On June 5th, 2020 the Paycheck Protection Flexibility Act was passed amending the eligibility criteria allowing business that have applied or had their PPP Loan forgiven to also defer their employer share of social security tax.
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?
The amount of deferred payroll taxes will not be included in your payroll journal entries. In order to find the balance of deferred taxes, follow the steps above.
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.