The Coronavirus Aid, Relief and Economic Security (CARES) Act dwarfed prior efforts by lawmakers to take on economic crises and natural disasters. While key elements of this bill are controversial — it, along with the Family First Coronavirus Response Act (FFCR) passed earlier in March, and the actions of the administration, have created numerous programs that can help car washes and other businesses weather the continuing crunch.
The most popular and well-known provision provided one-time direct payments of $1,200 per adult with income below a $75,000 ceiling, $2,400 per married couples and $500 per child. Above the ceiling, payments will be gradually reduced, disappearing after an individual’s income reaches $100,000.
THE UNEMPLOYMENT CRISES
To help bring back workers already laid off, the eight weeks of unemployment assistance will be retroactive to February 15, 2020. But, that’s not all, already on the books are the following:
• Until December 31, 2020, some employers will be required to pay sick leave to employees. Fortunately, there is a compensating, 100 percent tax credit, a direct reduction of their tax bill rather than a deduction.
• An employee retention tax credit that is estimated to provide $50 billion to businesses that retain employees on their payroll will cover 50 percent of workers’ paychecks up to $10,000. A car wash business will also be able to defer payment of the 6.2 percent Social Security payroll tax for two years.
• The so-called “Pandemic Unemployment Assistance” program is aimed at self-employed and contract workers who are typically not eligible for unemployment payments. Unemployment insurance now extends to the self-employed including independent contractors, independent sales reps, freelancers, and so-called “gig” workers. Those with a limited liability company (LLC) or S corporation qualify.
• Also included are incentives for work-sharing and a program to cover a portion of lost wages for workers whose hours have been reduced, designed to incentivize businesses to retain workers by employing them for less time.
PAYING FOR IT ALL
The CARES Act contained a number of programs and funding to help every car care business weather the financial impact of the Coronavirus pandemic, including:
Paycheck Protection Program
The CARES Act originally earmarked $349 billion for small business loans — to be spent on rent, payroll, and utilities and treated as a grant that does not have to be repaid. The SBA-guaranteed loans of up to $10 million, with terms of up to 10 years, and interest rates of up to 4 percent to businesses with fewer than 500 employees to help employers keep workers on their payrolls.
The PPP, with loans that, in many cases, can turn into non-repayable grants, may be especially attractive for small businesses. After all, funds are provided through local banks, credit unions, and other financial institutions. In fact, in addition to providing more funding for the PPP, $60 billion has been earmarked for smaller banks and community lenders that seek to focus on under-banked neighborhoods and rural areas.
Another $60 billion in the new funding has been earmarked for small business loans and grant programs delivered through an existing small-business disaster aid program, $10 billion of which will come in the form of direct grants.
Expanded Economic Injury
The SBA is providing expanded access to working capital loans of up to $2 million for small businesses impacted by the Coronavirus. These loans carry an interest rate of 3.75 percent with loan terms that vary by applicant, up to a maximum of 30 years. The expanded program for sole proprietors and businesses with fewer than 500 employees doesn’t require personal guarantees on loans under $200,000, while payments can also be deferred for up to four years.
SBA Economic Injury Disaster Loan applicants can qualify for grants of up to $10,000, to be used to provide employee sick leave, maintain payroll, or meet other needs such as paying rent — even if denied a loan.
CORRECTING THE RETAIL “GLITCH”
When Congress raised bonus depreciation to 100 percent, they limited the write-off to business property with a useful life of 20 years or less. After the Tax Cuts and Jobs Act (TCJA), all so-called “qualified improvement property” was depreciated as 39-year property and was not eligible for bonus depreciation.
Now, Congress has corrected this oversight and defined qualified improvement property as 15-year property and allowing 100 percent of improvements to be deducted in the year incurred. What’s more, the way this change has been worded, it applies to all property acquired and placed in service after September 27, 2017.
Keeping in mind that while “lost income” is not a legitimate tax deduction, other provisions in the tax law may help car care business owners and operators recover financially from the tax impact of the Coronavirus pandemic and other disasters, especially when the federal government declares their location to be in a major disaster area.
Both individuals and businesses in a federally declared disaster area can get a faster tax refund by claiming losses related to the disaster on the tax return for the previous year, usually by filing an amended tax return. Regular business losses must be deducted from this year’s income — if there is any.
Although the TCJA eliminated carrybacks for net operating losses (NOL), the CARES Act allows losses to be carried back two years and offset 100 percent of current income going forward, at least for the 2020 tax year.
And, don’t forget, while the car wash operation can’t get this tax break if it is a pass-through entity (such as sole proprietorships, partnerships, or S corporations), their owners can apply their NOL on their personal tax returns. Regular corporations are, of course, taxed at the corporate level and the NOL carryforward is applied on the corporate tax return.
The TCJA’s limit on excess business losses for non-corporate taxpayers, has been eliminated for 2020. The former rules limiting business losses to $250,000 for single filers and $500,000 for joint filers will apply to tax years beginning after 2020 and before 2026.
Thanks to the FFCR Act passed early in March, employers required to provide paid family and medical leave to their employees may claim a tax credit that has been extended through 2020. There are similar tax credits for self-employed individuals.
Until December 31, 2020, certain, mostly larger employers are required to pay sick leave to specified employees with compensating 100 percent tax credit. Under the FFCR Act, employers must provide 14 days of paid sick leave if workers are ill or quarantined because of the virus or have to care for an infected family member.
Although the provision requiring employers to pay sick and medical leave to workers has been extended to include the 2020 tax year, employers with fewer than 50 employees are eligible for an exemption from the requirement to provide leave to care for a child whose school is closed or when child care is unavailable.
To take immediate advantage of the paid leave tax credits, a car care operation can retain and access funds that they would otherwise have paid to the IRS in payroll taxes. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS using a soon-to-be released, streamlined claim form.
SELF-HELP CORONAVIRUS SURVIVAL
Many car care business operators busy attempting to fathom the steady stream of new government programs, plans, and benefits, may be overlooking remedies that already exist. Consider:
• Line-of-credit. A pre-established line of credit allows the car wash to borrow in increments as needed, repay it and borrow again as long as the credit line remains open. Typically, the operation is required to pay interest on any balance borrowed and a lesser amount for having ready access to the unexpended amount of the line of credit.
• Business interruption insurance is coverage that replaces business income lost in a disaster that many car wash operators may be unaware of. Business interruption insurance is not sold as a separate policy but is either added to a property/casualty policy or included in a comprehensive package policy as an add-on or rider.
• And don’t forget those extended deadlines for both filing tax returns and paying taxes. Although the tax filing deadlines for many businesses have passed, individuals including many car care professionals and other small-business owners, now have until July 15 to file. Best of all, if money is owed the IRS, delayed payments will be interest and penalty-free for 90 days.
EARLIER MADE BETTER
The help provided in this new legislation supplements many of the benefits created by The Family First Coronavirus Response Act (FFCR) that became law earlier in March, and the actions of the administration. However, our lawmakers and the administration continue drafting measures to help blunt the economic fallout from the Coronavirus pandemic.
As this fight against the Coronavirus continues, attention must be paid to new developments. As always, the ever-changing response to the pandemic, and the complexity of the rules when dealing with its economic impact, make professional assistance advisable.
Mark E. Battersby is an Ardmore, PA-based freelance writer, specializing in finance and tax issues.