PPP Flexibility Act expands payroll tax deferral

Business owners and employers who received a loan under the Paycheck Protection Program (PPP) can now take advantage of the tax deferral of the employer’s portion of the Social Security taxes under Section 2302 of the Coronavirus, Aid, Relief and Economic Security (CARES) Act.

The change is part of the Paycheck Protection Program Flexibility Act signed into law Friday, originally detailed in a previous Kraft Advantage alert.

As originally enacted, Section 2302 allowed employers to defer the deposit and payment of the employer’s portion of the Social Security taxes and certain railroad retirement taxes required by Sections 3111(a) and 3221(a) for a period that starts March 27, 2020, and ends before Jan. 1, 2021. The deferred deposits will not be subject to the failure to deposit penalty and will be considered timely if 50% of the deferred amount is deposited with the Internal Revenue Service on or before Dec. 31, 2021, and the remaining 50% is deposited on or before Dec. 31, 2022.

The deferral was generally available to all employers, although Section 2302(a)(3) of the CARES Act disallowed tax deferral for an employer that received a PPP loan and subsequently had all or a portion of it forgiven. Once an employer received a decision from the lender that its loan was forgiven, the employer was no longer eligible for the deferral after that date but could continue to defer the deposits prior to that date.

The PPP Flexibility Act amended the tax deferral provisions of Section 2302 by permanently removing the exception under Section 2302(a)(3) effective retroactively as of March 27, 2020. Employers that received PPP loans can take advantage of the tax deferral regardless of whether their PPP loans are subsequently forgiven.

The PPP and CARES Act have undergone a variety of adjustments that affect business owners and employers. Reach out to a KraftCPAs professional to see how the latest changes could impact your business.

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