Small Business and Tax Filing Implications of COVID-19

March 24, 2020 · Written By Ryan Tiesi, CPA, CFA

We hope all of you are staying well during these difficult and unprecedented times. We are writing today to provide information on recent developments affecting our small business and tax clients. The daily volume of new information is significant, and we will do our best to help summarize and assist you in thinking through the impacts of recent developments.

State Closures of Non-Life-Sustaining and Non-Essential Businesses

As we noted in our March 20 client update, Governor Wolf has mandated the closure of all non-life-sustaining businesses in Pennsylvania until further notice. This order went into effect March 23. The initial list of Pennsylvania non-life-sustaining businesses was revised over the weekend due to the elevated number of waiver requests received by the Pennsylvania state government. 

The following link provides the list of businesses that may continue their operations based on their designation as life-sustaining businesses: Industry Operation Guidance – Pennsylvania. All other businesses in Pennsylvania are required to close until further notice.

Similarly, in Ohio, Governor DeWine ordered the closing of all non-essential businesses which is scheduled to take effect March 24, until at least April 6. The list of essential businesses in the state of Ohio differs from the list of life-sustaining businesses in Pennsylvania. The following link provides a current list of essential businesses in the state of Ohio: Industry Operation Guidance – Ohio.

Recommendations to Address Liquidity Challenges

Businesses that are deemed to be non-life-sustaining or non-essential will face substantial hurdles over the next several weeks, and possibly months, especially related to cash flow and liquidity challenges. To help address these cash flow challenges, we encourage small business owners to consider taking the following actions:

  • Talk with vendors about credit terms.
  • Discuss short-term financing options with banks and other lenders.
  • Consider the need for a loan from the Small Business Administration.
  • Review insurance policies to determine if an insurable event has occurred as a result of the COVID-19 pandemic.

Governmental Response to COVID-19 Pandemic

The U.S. government is working to help blunt the economic fallout from the temporary shuttering of large portions of the U.S. and global economy. The U.S. Congress has passed, and President Trump has signed into law, two COVID-19 related stimulus packages. 

Federal Stimulus Package One

The first package (phase one) was signed into law on March 6, which provided $8.3 billion of funding for healthcare, COVID-19 testing, and the Small Business Administration, among other crucial initiatives. This package included $1 billion in loan subsidies for small businesses.

Federal Stimulus Package Two

The phase two package was signed into law on March 18 and is estimated to cost roughly $100 billion. This package provided free COVID-19 testing for patients, two weeks of paid sick and family leave, increased federal funds for Medicaid and food security programs, and increased unemployment benefits. Highlights from the phase two package include:

  • Employers with fewer than 500 employees are required to provide 12 weeks of Family and Medical Leave Act (FMLA) leave for child care reasons related to COVID-19. This leave must be compensated by the employer after the first 10 days of the leave at two-thirds of the employee’s wage up to $200 per day.
  • Small employers that are not subject to FMLA’s regular leave provisions are subject to the new COVID-19 related FMLA provisions; however, the law does allow for future regulations to exempt businesses with fewer than 50 employees if the leave would jeopardize the viability of the business.
  • Employers must provide 80 hours of paid sick time for specific COVID-19 related reasons.  Employers may exclude employees who are healthcare providers and emergency responders from the FMLA expansion and sick leave provisions.
  • To offset the additional expense associated with the FMLA expansion and paid sick time for COVID-19 related reasons, businesses will be entitled to a tax credit to offset quarterly payroll taxes which will reimburse the employer’s cost of providing the mandated family leave and paid sick leave on a dollar-for-dollar basis.

These provisions take effect on April 2 with the leave benefits noted above expiring on December 31, 2020.

Proposed Package Three

Congress is in the midst of negotiating a phase three stimulus package with an expected price tag in excess of $1 trillion. The legislation is expected to include direct payments to tax payers, money for small business loans, and funds to support industries hardest hit by the COVID-19 fallout. We will provide more information on the phase three stimulus package in future correspondence as specifics around the anticipated legislation continue to unfold.

Federal and State Tax Filing Extensions

On March 20, Treasury Secretary Mnuchin announced that the April 15 filing deadline for federal returns is delayed until July 15. The due date for federal income tax payments is postponed to July 15 as well, including self-employment tax of sole proprietors and the first quarterly estimated income tax payment for 2020, which is normally due on April 15. Pennsylvania state tax returns and payment due dates also have been moved to July 15 to align with the federal government deadlines. As of today, Ohio state tax return and payment due dates continue to be April 15.

At JFS, we will continue to work diligently each day to help you solve your biggest financial and business-related challenges. We strive to be a steadying force in the midst of elevated short-term volatility, and we are grateful for the trust that you have placed in us. Best wishes of health and safety to you and your family during these challenging times.