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Articles From Lumsden McCormick

NYSSCPA Small Business Town Hall Summary of Pandemic Related Issues

Source: New York State Society of Certified Public Accountants Small Business Town Hall Teleconference, May 13, 2020, 1:00 PM.

As you may know, the payment deferral of the Employer Portion of the 6.2% Social Security (SS) Tax was provided for in the CARES Act, which was signed into law on March 27, 2020. Please refer to IRS FAQs (specifically, FAQ #s 2 and 4, and also # 5). Please note that in addition to the temporary availability of this deferral to PPP Loan recipients (as below, up to the date forgiveness is granted), this can be used by any employers utilizing other CARES Act and Families First Relief Act (FFCRA) provisions such as paid leave credits and employee retention credits.

The CARES Act provides that “the payment for applicable employment taxes [i.e., 6.2% Employer SS match] for the payroll tax deferral period shall” be deferred. The “payroll tax deferral period” is the period beginning on Mar. 27, 2020 and ending on Dec. 31, 2020.  According to IRS FAQ #4, employers who have received a PPP loan, but whose loan has not yet been forgiven, may defer deposit and payment of the employer's portion of SS tax that otherwise would be required to be made beginning on March 27, 2020, through the date the lender issues a decision to forgive the loan without incurring failure to deposit and failure to pay penalties.  In addition, the repayment of the SS tax-deferred would be due 50% on 12/31/21 and 50% on 12/31/22.  Accordingly, this deferral is the equivalent of a loan and should be recorded and accounted for as a liability.

Even if you have already received your PPP Loan funding, the 8-week covered period for your loan will begin on the date of loan funding.  This will allow for the processing/payment of a number of payrolls spanning the loan funding date through the end of the 8th week. In addition, based on our reading of the answer to IRS FAQ #4, the employer SS match coinciding with the end of March and any April payrolls processed prior to loan funding may also qualify for deferral, since they were both required to be made after March 27th. And lastly, depending on when you are required to apply for forgiveness and depending on the date thereafter that your lender renders its decision as to the loan amount forgiven-there could be one or more post end of 8th-week pay periods that would qualify for deferral.

Given that this deferral may amount to 6.2% of a number of pay periods, and may be worth considering.   

If you are considering this, the possible next steps/talking points to discuss with us are as follows, which may involve also include conversations with your payroll processor (Paychex, ADP, etc.):

1)  Via the filing of your Q1 2020 Form 941, request a refund of the 6.2% SS match already remitted for any pay period that ended after March 27th and before April 1st. Please refer to IRS FAQ #2. (NOTESince the first quarter is now over and filed, and this only represents the last 4 days of that filing period, it is probably not worth the cost and effort to amend the Q1 2020 payroll tax filings!!!)

2)  Similarly, via the filing of your Q2 2020 Form 941, request a refund of the 6.2% SS match already remitted for payrolls ended after March 31st and before date of loan funding (or through the current payroll period).

3)  Request that your Payroll Processor suspend the remittance of future SS 6.2% matches until the pay-period end closest to end of the 8-week covered period or up until the date you receive a formal forgiveness decision from your PPP lender.  If the Payroll Processor cannot accommodate that, then the fallback approach would be to revert to 2) above and request that these payroll taxes also be refunded via the filing of Q2 Form 941.

4)  Based on the date of your PPP loan funding and the end of your 8-week period, and when you get your lender's forgiveness decision (up to 60 days after you apply for forgiveness); it is possible that this may continue into Q3 2020 for a period of time as well.

5)  You should record this deferral as a liability for the payroll tax amount deferred.

Unanswered question: Will the Employer be allowed a deduction for the deferred 6.2% Employer match on its 2020 tax return?  We just don't know that answer yet.

If you opt for this, please remember that this is NOT relief or forgiveness; it is simply a deferral of taxes due this year in 2020 into 2021 and 2022, so it is the equivalent of taking a loan from the IRS! Taking this option would INCREASE your 12/31/2021 AND 12/31/2022 payroll tax liability obligation to the IRS by 50% of the amount deferred for 2020. Everyone should consider their specific cash flow needs and cash management capabilities in making any decision.

Source: New York State Society of Certified Public Accountants Small Business Town Hall Teleconference, May 13, 2020, 1:00 PM.

NYSSCPA Small Business Town Hall Summary of Pandemic Related Issues

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As director of our auditing and accounting department, Donna possesses a wealth of knowledge in auditing, taxation, and other financial areas to assist clients achieve their short- and long-term goals. She enjoys working closely with organizations to evaluate their capacity, performance, and other key measures, helping them use the information to run their organizations more effectively. Her primary client responsibility is management and oversight of services provided to exempt organizations and professional service corporations. She has specific expertise with charitable organizations, foundations, governmental agencies, public authorities, and educational institutions, including colleges and universities and private and charter schools. Donna also oversees Firm services provided to law firms and other professional service organizations and works closely with various commercial businesses.

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