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CARES Act Allows Employers to Defer Payroll Taxes

April 01, 2020

By: Amanda Wilson and Ferran Arimon 

The Coronavirus Aid, Relief, and Economic Security Act (CARES) Act was signed into law by President Trump last week. In an attempt to address cash flow concerns of businesses, Section 2302 of the CARES Act gives employers and self-employed individuals the ability to defer certain payroll taxes.

Specifically, the following taxes can be deferred:

  • The 6.2% employer’s share of Social Security tax due under Section 3111(a) of the Internal Revenue Code;
  • The Tier 1 Railroad Retirement Tax Act tax due under Sections 3211(a) and 3221(a) of the Internal Revenue Code, which corresponds to the 6.2% Social Security tax due; and
  • For self-employed individuals, 50% of the 12.4% tax due under Section 1401(a) of the Internal Revenue Code on self-employed net earnings.

This deferral is allowed for payroll taxes incurred between March 27, 2020, (the date of enactment of the CARES Act) and December 31, 2020.  The deferred amounts will be treated as timely paid if half of the deferred taxes are paid by December 31, 2021, and the other half are paid by December 31, 2022. There is no cap on the amount of payroll taxes that may be deferred under this provision.  

Employers and self-employed individuals should be careful before electing to defer payroll taxes if they are considering taking out a Small Business Act loan.  The payroll tax deferral is not available, and thus penalties and interest would likely apply, if the employer or self-employed individual obtains a Small Business Act loan under the Paycheck Protection Program portion of the CARES Act and that loan is later forgiven (a discussion of the Paycheck Protection Program can be found here). 

Be sure to visit our Coronavirus (COVID-19) Response Team page to keep up-to-date on the latest news.


This article is informational only. You should consult an attorney before acting or failing to act. The law may change rapidly and no warranty is given. LOWNDES DISCLAIMS ALL IMPLIED WARRANTIES AND WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE. ALL ARTICLES ARE PROVIDED AS IS AND WITH ALL FAULTS. Consult a Lowndes attorney if you wish to establish an attorney/client relationship.
Ferran

Ferran Arimon focuses his legal practice on corporate and securities law, mergers and acquisitions and tax law.


A member of the firm’s Corporate Group, Ferran works with clients to structure financing transactions in compliance with federal and state securities laws and represents both public and private companies in mergers, acquisitions, capital raising, and corporate governance matters. Additionally, he counsels clients on a broad range of tax issues and business planning issues from entity selection and formation to dissolutions.

Amanda

A member of the firm’s tax practice, Amanda Wilson concentrates on federal tax planning and structuring. She represents clients in a wide variety of complex federal tax matters with a particular emphasis on pass-through entities such as partnerships, S corporations and real estate investment trusts. Specifically, Amanda focuses on advising clients on the formation, operation, acquisition and restructuring of such pass-through entities. In addition, she regularly advises clients on the structuring and operation of private equity funds, real estate funds and timber funds. Amanda is the author of the Bloomberg Tax Management Portfolio 718-3rd Edition, Partnerships- Disposition of Partnership Interests or Partnership Business; Partnership Termination.

Amanda regularly works in structuring deals to benefit from tax advantaged structures, including like-kind exchanges, new market tax credits, low income housing tax credits, and qualified opportunity zones. Amanda also has extensive experience in corporate planning and international tax matters, as well as federal tax controversy. Her practice before the Internal Revenue Service (IRS) includes providing advice on audits and appeals, drafting protests and ruling requests, and negotiating settlements.

Prior to joining the firm, Amanda worked for Sutherland Asbill & Brennan LLP (now Eversheds Sutherland), an Am Law 100 firm in the Atlanta office, where she was part of Sutherland’s Tax Practice Group. Amanda has also served as an adjunct professor at Emory University School of Law where she taught Partnership Taxation.

Amanda regularly contributes to the firm’s Taxing Times blog and is a regular panelist on tax webinars hosted by Strafford Publications.

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