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Interest free “loan”: deferral of employment tax deposits

COVID-19 has had a significant impact on the global economy. Many dealerships in the United States have been forced to halt operations in some capacity by their state and local governments. Even those who have been deemed essential businesses and remained open have seen a significant economic impact as a result of the COVID-19 pandemic. Many respected economists are calling this the start of what can be an even more significant downturn than The Great Recession of the late 2000s. What does this mean for you? The last decade of economic growth and prosperity is due to dry up and our cash will be more important than ever.

To help support the United States economy, Congress passed the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act on March 27, 2020. In the CARES Act are numerous provisions for the benefit of businesses and individuals alike to dampen the adverse effects of the virus on our country.  One of the provisions both large and small dealers can take advantage of is the deferral of the employer portion of Social Security taxes.

Ordinarily, 6.2 percent of employee wages are withheld from their checks for Social Security taxes.  The employer has an obligation to pay a matching amount on behalf of each employee.  Due to the pandemic, many businesses are faced with cashflow issues, making this obligation especially burdensome.  The CARES Act allows employers to defer the payment of their portion of Social Security taxes incurred between March 27, 2020 and December 31, 2020. Half of the deferral is due on December 31, 2021 and the remaining is due on December 31, 2022. There is no interest that accrues on the amounts deferred during 2020, essentially making this program an interest free loan for dealers from the government.

It is important to note that dealers participating in the Paycheck Protection Program (“PPP”) may not be entitled to defer the Social Security taxes for the entire period through December 31, 2020. Dealers with PPP loans will apply through the bank for a portion of their loan to be forgiven based on eligible expenditures and other stipulations. On the date your lender issues a decision to forgive any portion of the PPP loan, you are no longer eligible to continue deferring the Social Security tax deposits.

The specific rules relating to numerous provisions of the CARES Act and the PPP loans continue to develop with many items changing on seemingly a daily basis.  Accordingly, please contact us with any questions you may have.

HBK's Dealership Hotline Number is 317-886-1624 or you can send an email to vramun@hbkcpa.com.

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Far West Equipment Dealers Association

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