As we wrote last month, practice owners with staff can take advantage of an interest-free loan in the form of a deferral of 2020 matching Social Security taxes into 2021 and 2022. Completing the quarterly payroll tax filing due 7/31 is an essential step for anyone looking to maximize this opportunity.
Practice owners are required to withhold Social Security taxes from their staff salaries at a rate of 6.2% on the first $137,700 (in 2020) paid to each employee, including any practice owner or associate paid as a W2 employee. The practice then matches those taxes, so the government gets 12.4% in Social Security taxes on up to $137,700 (in 2020) of gross wages per employee.
Under the revised PPP rules, even practices who got the PPP can defer remitting those matching Social Security taxes on wages paid after March 27, 2020 through the remainder of 2020. The deferral equals $620 for each $10k of salaries paid. Practice owners would repay 50 percent of the amount deferred by 12/31/21 and the remaining 50 percent by 12/31/22. No interest will be due on these deferred taxes.
File the Form 941 Correctly:
Prior to July 31st, your practice’s payroll service will complete and submit a newly expanded Form 941 (https://www.irs.gov/forms-pubs/about-form-941) to the IRS, which reconciles the federal income taxes, Social Security taxes, and Medicare Taxes withheld from your staff’s salaries with the federal payroll tax deposits made during the quarter. The 941 form for Q2 needs to be completed correctly for you to successfully defer the Social Security Match on wages paid between 4/1/20 and 6/30/20.
If you are a client of our firm’s payroll service, please notify us at firstname.lastname@example.org if you plan to take advantage of this interest-free advance. Otherwise, make sure to reach out to your payroll service as soon as possible about this, and if they give you a hard time, switch to us.