On March 11, 2021, President Joe Biden signed into law the American Rescue Plan Act, a $1.9 trillion bill that extends many forms of federal assistance for small businesses impacted by the coronavirus pandemic that were first introduced by the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Two of these provisions are the employee retention credit and the employer payroll tax deferral. These are related but function differently. The employee retention credit provides businesses with a payroll tax credit of up to $10,000 per full-time employee per quarter through Jan. 1, 2022, while the employer payroll tax deferral allows your business to postpone paying some payroll taxes due in 2020 by paying half of those taxes at the end of 2021 and the other half at the end of 2022.1
Nearly all businesses and self-employed individuals were eligible for the employer payroll tax deferral.
The provision lets you defer payment of the employer share (50%) of Social Security taxes on wages earned from March 27, 2020, through Dec. 31, 2021.
This payroll tax deferral was not a payroll tax credit. The credit is covered under another program.
Only for Employer Portion of Social Security Taxes
The deferral (and the credit) applied to the employer portion of Social Security taxes (6.2% of wages). This means that if you were self-employed, then you could defer payment of 50% (6.2%) of the 12.4% Social Security self-employment tax. You couldn’t defer payment of Medicare taxes (2.9%) or the employee portion of Social Security taxes (6.2%).23
You Could Defer Payments in Advance of Credits
The payroll tax payment deferral was in addition to the provisions of the employee retention credit and credits granted under the Families First Coronavirus Response Act (FFCRA). In other words, you could defer payment of your (employer) portion of Social Security taxes (6.2% of wages) for all employees for wages paid from March 27, 2020, through Dec. 31, 2021.1
Initially, you could continue to defer any payments not covered by either the FFCRA credit or the employee retention credit—with one exception. If you received a Paycheck Protection Program (PPP) forgivable loan, then you could not defer payment once you were informed that the loan had been forgiven. However, that exception was eliminated by the Paycheck Protection Program Flexibility Act of 2020, which went into effect on June 26, 2020.