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On June 26, 2020, the IRS announced that it updated its frequently asked questions (FAQs) concerning the Social Security tax deferral option to reflect legislative changes enacted on June 5, 2020 under the Paycheck Protection Program Flexibility Act of 2020 ("PPP Flexibility Act," Pub. Law 116-142).

Specifically, FAQs 3, 4 and 5 are updated to reflect that businesses taking loans under the Paycheck Protection Program (PPP) are no longer precluded from exercising the option to defer payment of the employer portion of Social Security as provided under the Coronavirus Aid, Relief, and Economic Security (CARES Act), even if those loan balances are later forgiven.

These changes are reflected in the final instructions for the 2020 second quarter Form 941.

For more information on the Social Security tax deferral option see our special report.

FAQ 3. Which employers may defer deposit and payment of the employer's share of Social Security tax without incurring failure to deposit and failure to pay penalties ?

All employers may defer the deposit and payment of the employer's share of Social Security tax.

4. May an employer that receives a loan under the Small Business Administration Act, as provided in section 1102 of the CARES Act (the Paycheck Protection Program (PPP)), defer the deposit and payment of the employer's share of Social Security tax even if the loan has been forgiven (or partially forgiven) in accordance with paragraph (g) of section 1106 of the CARES Act, as amended by section 3 of the Paycheck Protection Program Flexibility Act of 2020 (PPP Flexibility Act) ? (updated June 26, 2020)

Yes. The PPP Flexibility Act, enacted on June 5, 2020, amends section 2302 of the CARES Act by striking the rule that would have prevented an employer from deferring the deposit and payment of the employer's share of Social Security tax after the employer receives a decision that its PPP loan was forgiven by the lender. Therefore, an employer that receives a PPP loan is entitled to defer the payment and deposit of the employer's share of Social Security tax, even if the loan is forgiven.

Prior to the enactment of the PPP Flexibility Act, an employer that received a PPP loan was not permitted to defer deposit and payment of the employer's share of Social Security tax after the receipt of the lender's decision forgiving all or a portion of the employer's PPP loan.

5. Is this ability to defer deposits of the employer's share of Social Security tax in addition to the relief provided in Notice 2020-22 for deposit of employment taxes in anticipation of the Families First Coronavirus Relief Act (FFCRA) paid leave credits and the CARES Act employee retention credit ?

Yes. Notice 2020-22 provides relief from the failure to deposit penalty under IRC Section 6656 of for not making deposits of employment taxes, including taxes withheld from employees, in anticipation of the FFCRA paid leave credits and the CARES Act employee retention credit. The ability to defer deposit and payment of the employer's share of Social Security tax under section 2302 of the CARES Act applies to all employers, not just employers entitled to paid leave credits and employee retention credits.

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