Paycheck Protection Program and Payroll Tax Deferral in the CARES Act

April 6, 2020|

On March 27, 2020, the president signed the Coronavirus Aid, Relief, and Economic Security Act, known as the CARES Act, in response to the COVID-19 outbreak. The law provides funding for a number of programs to assist individuals and businesses navigate the economic and health consequences of the public health emergency.

Some of the more familiar provisions of the law include expanded unemployment benefits and a tax rebate for workers, in which the federal government will deposit money in the bank accounts of many taxpayers or will issue paper checks. There are income limits that determine who qualifies for the rebate.

For employers, there are other provisions of interest, including the Paycheck Protection Program and a deferral of employer payroll taxes.

Paycheck Protection Program

The Paycheck Protection Program is a business loan secured through lenders approved by the U.S. Small Business Administration. Businesses with 500 or fewer employees can apply for the loan beginning April 3, 2020. There are some exceptions to that 500 employee limit for specific industries, including certain hospitality and foodservice companies with more than one location.

The loan can be used to cover payroll and benefits costs as well as mortgage interest, rent, and utilities in place prior to February 15, 2020. Loans can equal up to two months of average monthly payroll costs from the last year, plus an additional 25%. In making that calculation, salaries are capped at $100,000 annually.

Loan payments will be deferred for six months and may be forgiven if certain requirements related to the number of staff, level of payroll, and rehiring of workers are met.

To apply for the Paycheck Protection Program loan, complete the Paycheck Protection Program Borrower Application Form, and submit it to an SBA-approved lender. Different lenders may request different payroll forms to gather the necessary information to review the loan application. That information can be accessed through your payroll processor, whether that is an employee who manages payroll, your payroll software, or your CPA.

While the Payroll Protection Program loan program was recently frozen due to lack of funding, it resumed on April 27, 2020. The PPP applications are being accepted through August 8, 2020.

This post was updated on July 31, 2020.


Delay of Payment of Employer Payroll Taxes

Under Section 2302 of the CARES Act, Social Security employer taxes incurred between March 27, 2020, through the end of the year can be deferred. Fifty percent of the taxes due must be paid by December 31, 2021, and the remaining half by December 31, 2022.

According to the IRS, if you are granted a forgivable loan under the Payroll Protection Program you cannot also defer employer Social Security taxes. It’s important to note that other sources are reporting that simply partaking in the PPP loan offering means employer Social Security taxes cannot be deferred. For this reason, we recommend consulting your CPA or attorney for professional advice on whether to defer tax payments.


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