July 23, 2020
The AICPA website says that employee federal withholding is included in allowable payroll costs for the purposes of determining the amount to be forgiven, but the employer federal payroll taxes (i.e. FICA and Medicare taxes) imposed on the gross payroll are not eligible payroll costs for the loan forgiveness calculation. Is that right?
Posted by Armanino Financial Advisory Team
Yes, the AICPA got that one right. Understand that employee withholdings are deducted from gross pay. Also understand that the payroll cost calculation uses gross pay for each employee. Therefore, those withholdings are “allowable” because they are included in gross pay. However, the payroll taxes paid by the employer, separate from the amounts withheld from the employees, are ineligible because otherwise you would be using federal government money to pay federal government taxes. If they wanted to do that, they would have simply waived the requirement to pay taxes and kept it simple. On that notion, though, they do now allow any business, regardless of whether it has had PPP money forgiven, to defer (not avoid) paying the FICA portion of payroll taxes (6.2%) through the end of 2020, with half of the deferral amount due December 31, 2021 and the other half due December 31, 2022.