Please hear when we say—
- This is complicated
- You might not be able to utilize this relief at all
- If you are able to utilize it, you won’t know for a few months how long it will be available to you
- It is not nearly as valuable as it first sounds
With your expectations set appropriately, let’s begin. There is a relief provision which allows you to defer the payment of A PORTION of your employment taxes until 12/31/21 (50% of the amount deferred) and 12/31/22 (the remaining 50%). We previously did not mention this provision because it was said to be unavailable if you take a PPP loan. However, we have received clarifications and the provision is still available to you until you actually have some forgiveness of your PPP loan. So merely applying for or accepting a PPP loan does not void this relief. But once you receive forgiveness for any portion of the PPP loan, this relief ends. So for now, until some unknown time in the future but not later than December 31, 2020, you have the opportunity to defer A PORTION of your employment taxes.
So what exactly can I defer? You can defer ONLY the employer matching portion of the Social Security taxes that are withheld from employee paychecks (including your own if you are an employee). It does not mean you get to skip your 941 payment entirely. Let’s take an example. An employee makes $1,000. You withhold the required 6.2% or $62 of Social Security tax, 1.45% or $14.50 of Medicare tax and $100 of federal income tax and issue a net paycheck of $823.50. Your normal 941 deposit would be as follows:
$62.00 employee withheld SS
$62.00 EMPLOYER MATCHING SS
$14.50 employee withheld Med
$14.50 employer matching Med
$100.00 employer withheld FIT
For a total of $253.
If you choose to utilize this relief you can defer the $62 of employer matching SS and deposit only $191 now. The remaining $62 would be due $31 by 12/31/21 and $31 by 12/31/22.
Ok not really much relief, but that’s just one small paycheck. So let’s go bigger. Your total payroll, including your own paycheck is $9,000. You withhold the required 6.2% or $558 of Social Security tax, 1.45% or $130.50 of Medicare tax and $2,000 of federal income tax and issue net paychecks of $6311.50. Your normal 941 deposit would be as follows:
$558.00 employee withheld SS
$558.00 EMPLOYER MATCHING SS
$130.50 employee withheld Med
$130.50 employer matching Med
$2000.00 employer withheld FIT
For a total of $3,377.
If you choose to utilize the relief you can defer $558 of employer matching SS and deposit only $2,819 now. The remaining $558 would be due $279 by 12/31/21 and $279 by 12/31/22.
The thought would be—yeah, ok, it’s still not much, but every little bit helps. True. But how are you logistically going to take advantage of this deferment? If you use a payroll company, we suspect they are going to deposit the taxes automatically as they always have. We haven’t received guidance from them but it is unlikely they will skip the payment and risk taking on that liability themselves. They can’t guarantee it will be paid timely A YEAR AND EIGHT MONTHS FROM NOW because who knows if you’ll still be a client of theirs at that time. If the payment is late, they would bear the penalties. For that reason it doesn’t seem like a realistic option. Additionally let’s say, yes, every little bit helps and these little bits over 2, 3, 5 payrolls…however many it may be, add up to a lot. Will you be prepared when the time comes in A YEAR AND EIGHT MONTHS FROM NOW to make good on the payments? IRS penalties are very expensive if you aren’t. You are essentially taking a loan from the IRS and that’s great, but the fees if not paid timely could be high. Think loan shark high. Might they be lowered due to the current crisis to which it relates, in a gesture of kindness? Umm, sure maybe.
Now you’re informed. If you handle your own payroll and tax deposits rather than utilizing a payroll service, it might be of some help to you. If not, you’re frankly not missing out on a great relief provision. Please know, handling your own payroll rather than utilizing a payroll company is NOT SOMETHING WE RECOMMEND typically so please don’t take this as advice to fire your payroll company.