By Andrew Gradman, Tax Attorney
Trusted Advisor at AB FinWright LLP (www.abfinwright.com) and Founder at Gradman Tax (www.gradmantax.com)

Accepted for publication in the CEB Business Law Reporter; reprinted with permission. Updated through April 24, 2020. The published version will reflect new developments and may contain proofreading and other changes. 

This article is the first of a four-part series which describes three tax subsidies which are meant to help keep employees employed during the coronavirus pandemic:

  1. Long-term deferral of the employer’s obligation to pay certain payroll taxes;
  2. A limited daily stipend for a limited number of days, to cover part of the newly-mandated paid sick or family leave (with a similar subsidy for the self-employed); and
  3. Up to $5,000 in dollar-for-dollar matching pay, for economically impacted employers.

These provisions appear in the Families First Coronavirus Response (“Families First”) Act (Pub Law 116-127, 134 Stat 178) and the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act (Pub Law 116-136 134 Stat 281).

1. Long-Term Deferral of Obligation to Pay Certain Employment Taxes 

Generally, employers must deposit employment taxes at least monthly. See IRC 6302 (deposit obligation); IRC 6656 (fifteen percent penalty); IRC 6672 and 7202 (further civil and criminal penalties). Section 2302 of the CARES Act provides an extension for depositing certain payroll taxes imposed on wages paid for the three remaining quarters of 2020. Think of this as an interest-free loan. Effectively, the amount of the loan is equal to 5.5% of total payroll costs (wages plus taxes) for the next three quarters. Half the amount is due by December 31, 2021, which is 20 months from now. The other half is due by December 31, 2022, which is 32 months from now.

This extension applies only to the 6.2% Social Security tax for employers paying FICA, which is imposed on wages up to $137,700 (an to an equivalent amount of self-employment taxes). However, it does not defer the other half of the Social Security tax, nor does it defer the 3.8% Medicare tax. Also, this only applies to deposits that would be required before the earlier of December 31, 2020 or (for taxpayers who received a loan under the SBA’s new “Paycheck Protection Program”) the date that loan is forgiven. See April 10 IRS FAQs, 4-6.

See our subsequent for articles for parts (2) through (4).