My colleague, Jordan Manley, contributed this post:
By now, most employers are aware of the benefits provided to employees by FFCRA and the financial support available to employers by the CARES Act. Generally, FFCRA provides a refundable payroll tax credit to employers who are required to provide paid sick leave and expanded family leave to employees unable to work as a result of COVID-19. The CARES Act, among other things, provides for (1) the SBA to administer PPP loans, (2) a deferral of employer Social Security taxes, and (3) a tax credit for particular employee retention costs. Here are how employer payroll tax credits, payroll tax deferrals and PPP loan forgiveness intersect.
FFCRA Payroll Tax Credits & PPP Loans (Payroll Calculations and Forgiveness)
Generally, an employer may be eligible to receive refundable payroll tax credits for FFCRA sick and expanded family leave and a PPP loan (primarily to be used for employee payroll costs). However, to calculate “payroll costs” to apply for a PPP loan, “payroll costs” may not include any expense or wage amounts required to be paid by FFCRA. Additionally, once an employer receives a PPP loan, the loan proceeds may not be used to pay expenses or wages required by FFCRA for which the employer is allowed to receive a tax credit. (See FFCRA Sections 7001 and 7003). Guidance has not yet been released to address what happens if an employer “double dips” by using the required FFCRA expenses/wages to calculate “payroll costs” for a PPP loan or if an employer uses PPP loan proceeds to pay FFCRA expenses/wages. However, we expect an employer will either be required to repay the tax credit or the applicable portion of the PPP loan will not be forgiven.
Employee Retention Payroll Tax Credits
Employers cannot “double dip” on tax credits. The CARES Act specifically denies a double benefit with respect to tax credits, providing that any wages considered to determine the employee retention credit shall not be considered for FFCRA payroll tax credits. Additionally, employers who receive a PPP loan may not receive an employee retention tax credit. The IRS will issue regulations and further guidance on the methods to recapture the employee retention tax credit in instances where a taxpayer also received a PPP loan. Therefore, an employer’s eligibility to obtain a PPP loan may not be affected if such employer also took the employee retention tax credit, however, it is likely that the employer will be required to repay the tax credit if the employer also received a PPP loan. (See CARES Act Section 2301).
Employer Payroll Tax Deferral
The CARES Act allows an employer to defer the payment of the employer portion of “applicable employment taxes” (i.e., Social Security taxes) which would normally be due between March 27, 2020 and December 31, 2020, so long as 50% of such deferred payroll taxes are paid by December 31, 2021 and the remaining 50% of deferred payroll taxes are paid by December 31, 2022. However, payment of applicable employment taxes may not be deferred when an employer has a PPP loan forgiven. (See CARES Act Section 2303). According to recent IRS guidance, an employer who receives a PPP loan may not defer the deposit and payment of the employer’s share of Social Security tax after the employer receives notice of loan forgiveness from its lender. That said, if the employer has not received a decision from its lender confirming the loan has been forgiven, then the employer may defer such taxes. (See IRS Notice 2020-22).
The IRS and Department of Treasury continue to issue guidance and clarification on these laws. We will update this post if/when more information is available. If you have questions in the interim, please email Jordan: firstname.lastname@example.org.