CHICAGO — The Coronavirus Aid, Relief and Economic Security (CARES) Act dwarfs prior efforts by lawmakers to take on economic crises and natural disasters. While key elements of this bill are untested — and can be seen as controversial — it, along with The Family First Coronavirus Response Act (FFCR) passed earlier in March, and the actions of the Trump Administration, have created numerous programs to help vended laundry owners and operators weather the crunch created by the COVID-19 outbreak.
Of interest to most owners and operators, the bill will provide 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 newly passed legislation, while providing zero-interest loans, tax breaks and other subsidies, includes an increase in the deductions for interest paid by a business from the 39% level created by the Tax Cuts and Jobs Act to 50%.
THE UNEMPLOYMENT CRISES
For those self-serve laundry operations concerned with labor issues, the new law allocates $250 billion to expand unemployment insurance to more workers and lengthen the duration to 39 weeks (up from the normal 26 weeks). An extra $600 each week would be provided for four months.
To help bring back workers already laid off, the eight weeks of unemployment assistance will be retroactive to Feb. 15. But, that’s not all. Already on the books are the following:
- Until Dec. 31, many employers will be required to pay sick leave to their employees. Fortunately, there is a compensating, 100% tax credit.
- An employee retention tax credit that is estimated to provide $50 billion to businesses that retain employees on their payroll will cover 50% of workers’ paychecks up to $10,000. Employers will also be able to defer payment of the 6.2% Social Security payroll tax for two years.
- The Pandemic Unemployment Assistance program is aimed at self-employed and contract workers who are typically not eligible for unemployment payments.
- 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 self-service laundry business weather the financial impact of the novel coronavirus pandemic, including:
- Zero-interest loans for businesses with fewer than 500 employees, loans that could be forgiven under certain circumstances such as not firing workers.
- Although mostly for businesses with more than 500 employees, the latest stimulus bill provides $500 billion to back loans. Any business receiving one of these loans will be subject to a ban on stock buybacks and curtailment of executive bonuses.
- More notably, the CARES Act earmarks $349 billion for loans to small businesses — funds that are to be spent on rent, utilities and payroll — which will be treated as a grant that does not have to be repaid. That’s right, loans of up to $10 million will be made available through Small Business Administration (sba.gov) Preferred Lenders, such as banks and credit unions. The government will pay off the loan balance if the business either does not lay off workers or rehires already laid-off workers.
- The SBA now has the authority — and available funds — to make over $7 billion in loans to qualifying small businesses via Economic Injury Disaster Loans. Each Economic Injury Disaster loan assistance declaration issued by the SBA makes loans available to small businesses in designated areas of a state or territory. These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The interest rate is 3.75% and, in order to keep repayments affordable, the loans have term repayment periods of up to 30 years.
CORRECTING THE RETAIL “GLITCH”
When Congress raised the bonus depreciation rate to 100%, it limited the write-off to business property with a useful life of 20 years or less. Unfortunately, the Tax Cuts and Jobs Act made all so-called “qualified improvement property” as 39-year property and thus not eligible for bonus depreciation.
Now, Congress has defined qualified improvement property as 15-year property, which means 100% of the cost of improvements made to so-called “retail” property can 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 Sept. 27, 2017.
Keeping in mind that “lost income” is not a legitimate tax deduction, other provisions in the tax law may help coin laundry business owners and operators recover financially from the tax impact of the 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.
A net operating loss (NOL) occurs when a business has more tax deductions than taxable income in a given year. NOL carrybacks formerly generated a refund of taxes paid in earlier years that provided an often badly needed infusion of cash.
Today, most NOLs arising in tax years after 2017 can only be carried forward. What’s more, for losses arising in taxable years beginning after Dec. 31, 2017, the NOL deduction is limited to 80% of taxable income (determined without regard to the deduction).
And, don’t forget, while the coin-operated, self-service laundry 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 carry-forward is applied on the corporate tax return.
Thanks to the FFCR Act passed early in March, employers providing paid family and medical leave to their employees may claim a tax credit, a direct reduction of their tax bill rather than a deduction, that has been extended through 2020. There are similar tax credits for self-employed individuals.
As mentioned, the provision requiring employers to pay sick and medical leave to workers has been extended to include the 2020 tax year. However, 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 child care is unavailable.
If paid leave exists, owners and operators can take immediate advantage of the tax credits. The business can retain and access funds that would otherwise be 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 streamlined claim form.
SELF-HELP CORONAVIRUS SURVIVAL
Many vended laundry owners and operators busy attempting to fathom the steady stream of new government programs, plans and benefits, may be overlooking remedies that already exist.
For example, a pre-established line of credit allows the self-service laundry business 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.
And don’t forget those extended deadlines for both filing tax returns and paying taxes. Although the tax filing deadlines for many businesses have already passed, individuals (including vended laundry owners, operators and their workers) 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.
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 are complex and can create confusion. However, these voluminous new laws and programs, along with the existing provisions and programs, can mean the survival of the coin-operated laundry.
As the fight against COVID-19 continues, attention must be paid to new developments, with more likely on the way. 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.
Information in this article is provided for educational and reference purposes only. It is not intended to provide specific advice or individual recommendations. Consult an attorney or tax adviser for advice regarding your particular situation.