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June 17, 2020
This paid piece is sponsored by Eide Bailly LLP.
The COVID-19 pandemic has brought many changes and regulations for individuals and business owners alike. New legislation, tax laws and other implications are getting approved seemingly every day to help businesses and their employees survive during this time.
The provisions in the CARES Act, which include the Paycheck Protection Program, Payroll Tax Deferral and the Employee Retention Credit, have been beneficial to businesses. However, it also is important to take a look at how these programs and provisions impact an organization’s payroll.
As one of the tax provisions included in the CARES Act designed to provide liquidity for businesses suffering from the COVID-19 pandemic, the Payroll Tax Deferral postpones the employer’s portion of certain payroll taxes incurred in 2020.
The taxes will be paid back in two installments:
What payroll taxes can be postponed?
Generally speaking, the payroll taxes that can be postponed into the next two years include:
Taxes that were due to be submitted March 27, 2020, or later are eligible for deferral, and there is no maximum amount of qualifying payroll taxes that can be deferred.
The CARES Payroll Tax Deferral does not include an employer’s portion of Medicare taxes or any amounts withheld from employees, including income tax withholdings and employee share of Medicare and Social Security. Payroll tax amounts that have been reduced by credits for qualified family and medical leave wages or the Employee Retention Credit are not eligible for deferral.
Who can’t defer payroll taxes?
Employers that have had debt forgiven under the Small Business Administration’s PPP or the U.S. Treasury Program Management Authority are not eligible for the Payroll Tax Deferral. However, this doesn’t exclude employers who have applied for and received PPP funds from being able to defer the employer’s portion of Social Security. Payroll taxes can be deferred until the point they receive a decision that their PPP loan is forgiven. At this point, the employer is no longer able to defer any additional payroll taxes, and the taxes that were deferred up until that time will be due on the installment dates.
Are third-party agents responsible for the deferred payments?
The CARES Act provides special rules for situations in which an employer uses a third-party agent or certified professional employer organization, or CPEO, to handle payroll. In cases like this, the employer is responsible for ensuring the deferred amounts are paid by the respective due dates. It is not the responsibility of the third-party agent or the CPEO.
How does an employer properly reconcile payroll with postponed payroll tax payments?
You will want to reconcile your payroll with each payroll process:
The Paycheck Protection Program, or PPP, provides funds that must be mainly used toward payroll costs. Tracking and documentation of this is critical, especially as it relates to potential loan forgiveness.
As a reminder, you can’t take the Employee Retention Credit if you elected to take the PPP funding.
The Employee Retention Credit, or ERC, is a fully refundable tax credit for employers equal to 50 percent of qualified wages, including allocable qualified health plan expenses that eligible employers pay their employees. The credit applies to wages paid after March 12, 2020, and before Jan. 1, 2021.
How it works
Relief provisions, including the CARES Act and the programs within it, contain elements that impact an organization’s payroll process. Knowing and understanding the impact of these acts will be crucial in making sure you have proper records and documentation.
While these acts have many pieces and may seem complicated, they don’t have to be. Reach out to an Eide Bailly professional, and visit Eide Bailly’s COVID-19 webpage, which is full of resources to help you and your business navigate these uncharted waters. Eide Bailly is here to help your organization stay on track and keep your employees safe during the COVID-19 pandemic.
Whoever handles payroll for your business needs to read this — lots of great advice about navigating current federal programs.