COVID-19 resources

Payroll Tax Relief

If you’re a small business owner right now, it may be daunting to pay payroll taxes. Learn how you can defer them.

Please note that the information contained in this article is limited in scope and is only intended as a high-level overview of the topics discussed. The information is current as of the publication date only, and the laws (and associated agency and/or judicial interpretations) on the topics discussed could change at any point in the future. Square, Inc. (including its affiliates, subsidiaries, employees, officers, directors, attorneys, and tax advisors) undertakes no obligation to update this article for future changes in the law. In addition, laws vary by jurisdiction, and this article does not attempt to address all jurisdictions — for example, states, counties, or cities often have requirements that differ from federal law. Nothing in this article is or should be used as tax or legal advice. In particular, this article cannot be relied upon for the purposes of avoiding taxes, penalties, or other obligations under applicable law. For guidance or advice specific to your business, you should consult with a qualified tax and/or legal professional.

If you’re a small business owner right now, it may be daunting to pay payroll taxes. Luckily the CARES Act, passed by the federal government to offer relief due to COVID-19, allows employers to defer paying some payroll taxes.

We’ll go over deferring payroll taxes, how the program works, and who is eligible. 

Deferred payroll taxes

The CARES Act calls this relief “deferred payroll taxes,” however, we should clarify that what you actually defer is the employer portion of Social Security taxes.

All employers pay Social Security tax on their employees’ wages. Social Security taxes cost the employer 6.2% of each employee’s wages. Under the CARES Act, all employers are eligible to defer Social Security taxes due during tax period beginning on March 27, 2020, and ending on December 31, 2020. 

How deferred payroll taxes work 

You will report the amount of the employer share of Social Security taxes you will defer on the Form 941 or Form 944 for the quarter. The IRS has updated instructions on Form 941 to reflect this deferral. 

A deferral doesn’t mean you will never pay these taxes, it just means that you’ll pay them at a later date. You must deposit 50% of the total deferral amount on December 31, 2021, and the remaining 50% on December 31, 2022.  

Who is eligible to defer payroll taxes? 

Employers that are paying employees and would subsequently owe Social Security taxes are eligible for this deferral. If you’re self-employed, you can take advantage of deferred payroll taxes by deferring your self-employment taxes. You can do this as long as your fiscal year ends between March 27 and December 31, 2020.  

If you received PPP, according to the Paycheck Protection Flexibility Act passed on June 5, 2020, you are eligible to defer your payroll taxes and apply for PPP forgiveness. You may also defer your payroll taxes and pursue Employee Retention Credits simultaneously. 

Deferred payroll taxes are just one form of relief for small businesses. Learn more about different kinds of financial relief you might be eligible for to explore all your options.