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PPP Flexibility Act Removes Bar on Deferral of Employer Portion of Social Security Taxes for PPP Loan Recipients

On Friday, June 5, 2020, President Trump signed into law H.R. 7010, the Paycheck Protection Program Flexibility Act of 2020 (the “PPP Flexibility Act”), modifying certain provisions of the CARES Act related to the forgiveness of loans under the Paycheck Protection Program (PPP) set forth in the CARES Act. 

As discussed in our April 1 Alert, the CARES Act defers the obligation of employers and self-employed individuals to pay the employer share of Social Security tax otherwise due with respect to wages paid from the date of the CARES Act enactment through the end of 2020. Fifty percent of the deferred taxes are due by December 31, 2021 and the remaining fifty percent by December 31, 2022. As discussed in our April 13 Alert, however, taxpayers who received covered loans under the PPP and whose loans are forgiven under the terms of the CARES Act were not eligible for that deferral from and after the date the PPP loan is forgiven.

The PPP Flexibility Act reverses this limitation. Specifically, the PPP Flexibility Act deletes the provision of the CARES Act that disallowed employers who obtain forgiveness of a PPP loan from deferring the employer portion of Social Security taxes until December 31, 2021 (for the first half) and December 31, 2022 (for the remaining half). As a result, recipients of PPP loans will be able to defer such taxes in the same manner as other businesses that do not receive PPP loans. The change is effective as if included in the CARES Act.

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