The IRS has issued frequently asked questions (FAQs) on the ability to defer payment of the employer portion of Social Security tax and certain self-employment taxes as allowed under section 2303 of the Coronavirus, Aid, Relief and Economic Security Act (CARES Act).

Form 941 will not be revised to reflect the option until second quarter 2020

Of significant note, although this deferral option applies to payments of the employer's share of Social Security tax that would otherwise be required to be made during the period beginning March 27, 2020, and ending December 31, 2020, the Form 941, Employer's QUARTERLY Federal Tax Return, will not be revised to reflect the deferral option until the second quarter covering the period April 1 to June 30, 2020.

The IRS states that instructions will be issued soon for deferring deposits and payments due in the 2020 first quarter (for the period March 27, 2020 to March 31, 2020), given that the first quarter 2020 Form 941 will not be revised to reflect this option.

No special election is required

In no case will a special election be required to take advantage of this deferral option.

Applicable taxes

The deferral option applies to the employer-portion of Social Security tax (6.2% of wages up to $137,700 for 2020) under IRC Section 3111(a) and for employers covered by the Railroad Retirement Tax Act (RRTA), the taxes imposed under IRC Section 3221(a) as are attributable to the rate in effect under IRC Section 3111(a) (collectively referred to as the "employer's share of Social Security tax").

Self-employed individuals may defer the payment of 50% of the Social Security tax on net earnings from self-employment income imposed under IRC Section 1401(a) for the period beginning on March 27, 2020 and ending December 31, 2020.

Due date for paying deferred taxes

To be treated as timely paid, and to avoid the failure to deposit penalty, the employer's share of Social Security tax must be repaid and deposited as follows:

• By December 31, 2021, 50% of the deferred amount
• By December 31, 2022, the remaining amount

Covered employers

All employers are eligible for this deferral option except one that has received a loan under the CARES Act Paycheck Protection Program (PPP); a deferral of the employer's share of Social Security tax is not allowed for amounts otherwise due on or after the date the PPP loan was forgiven.

Coordination with the FFCRA paid leave credits and CARES Act retention credits

The ability to defer deposit and payment of the employer's share of Social Security tax applies to all employers, not just employers entitled to paid leave credits under the Families First Coronavirus Relief Act (FFCRA) and the employee retention tax credits under the CARES Act. (Note the exception above for forgiven PPP loans above.)

Employers are entitled to defer deposit and payment of the employer's (6.2%) share of Social Security tax prior to determining the amount of (1) employment tax deposits they can retain in anticipation of these credits, (2) any advance payments of these credits, or (3) any refunds with respect to these credits.

Ernst & Young LLP insights

The option to defer payment of the employer portion of Social Security tax gives all businesses some temporary cash flow during the period of the COVID-19 emergency.

The deferral option is particularly helpful to businesses eligible for the FFCRA paid-leave and CARES Act employee-retention tax credits as it allows them to get an immediate cash benefit while they are going through the process of evaluating, computing and reconciling the credit amounts.

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