Employer Payroll Tax and PPP Forgiveness
So, we all wondered where the catch was in this PPP thing. So far, we couldn’t find any, until this past Monday. Well, here it is:
Are employee federal withholdings and employer payroll taxes on wages for the 8-week period included in payroll costs?
– The EMPLOYEE federal withholding is included in allowable payroll costs for the purposes of determining the amount to be forgiven.
– 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.
What the reason is for this, we do not have the slightest clue considering you paying taxes on your employees’ total payroll could not be anything but a cost of having payroll!! We know, we’re preaching to the choir but this is what it means to you in dollars and cents.
FICA and Medicare tax for 2020 will continue to be 7.65%. When broken down this number is made up of a Social Security tax rate of 6.2% and a Medicare tax rate of 1.45%. While there is no limit to the wages subject to Medicare tax the is a limit to the Social Security wage base of $137,700. The maximum Social Security tax an employer will pay in 2020 is $8,5637.40.
The bottom line, for every $1,000 of PPP wages you payout, $76.50 of your cost will not be included in the forgiveness calculations. I guess things could be worse…