We have been focusing on the federal loans made available under the CARES Act – PPP and EIDL loans. But a lesser-known CARES Act provision lets all employers, including nonprofits, DEFER paying their portion of Social Security taxes (6.2%) for wages paid between March 27 and December 31, 2020. (For an organization with a $500,000 annual payroll, that’s almost $21,000 that can stay in the bank a bit longer.)
The CARES Act lets all employers defer their payment Social Security taxes to mitigate pandemic-related economic hardship. Here are the basics:
- Employers pay Social Security taxes at a rate of 6.2% on the first $137,700 of wages paid to employees for calendar year 2020.
- The CARES Act lets employers defer payment of employer Social Security taxes otherwise owed for wage payments made after March 27, 2020, through the end of 2020.
- Instead of depositing these taxes on a next-day, semi-weekly, or quarterly basis:
- you can defer paying 50% of FICA taxes to December 31, 2021; and
- you can defer paying the remaining 50% until December 31, 2022 – two years later.
- If you received (or hope to receive) a Paycheck Protection Program loan, you can defer FICA taxes only until that loan is forgiven. That date is likely to be some time this summer or fall, so the deferral is still valuable.
- The deferral applies only to the employer portion of Social Security taxes, and not to federal income tax withholding, Medicare tax (1.45%), or the employee’s portion of Social Security taxes.
If you use a third party to handle your payroll, you can instruct them to defer paying the employer portion of Social Security taxes as these rules prescribe.