More than 100,000 small businesses have already been permanently destroyed over two months of government shutdowns, but a looming tax day now just eight weeks away could spell the death of thousands more.
As the nation’s economy began to crumble under state and local lockdowns implemented in March, Congress passed the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide billions to sinking small businesses. Part of that assistance included allowing businesses to defer payroll taxes for the rest of the year, with half due in 2021 and the rest in 2022.
The CARES Act, however, was passed on March 27, therefore only deferring payroll taxes on that date onward. That means businesses might still be on the hook for these tax dollars that would have been due in April on wages that were paid to employees throughout the first three months of the year on the new tax day set for July 15.
“If a business has burned through all of their reserves and has not set money aside, there’s a potential they will have a bill due then,” said Adam Michel, a tax policy expert at the conservative Heritage Foundation. ”
For businesses forced to shut down with no revenue for months because the government deemed them non-essential, coming up with the money to pay Uncle Sam’s bill could be a challenge many might not meet. According to a recent report from a team of economists at Harvard, the University of Illinois, and the University of Chicago studying the impact of the lockdowns of these small enterprises, many were already short on cash. They found that the median small business with more than $10,000 in monthly expenses only had enough cash to stay afloat for two weeks.
Michel emphasized that the treasure trove of tax credits and programs provided in the CARES Act likely prolonged the ability for many small businesses to sustain themselves through the crisis, which also makes it difficult to estimate the potential impact of the July tax day.
“It’s hard to say how big the storm will be,” Michel said, noting that unless businesses with significant tax liabilities have prepared with adequate reserves, “it will certainly be a problem.”
“The hope is that businesses start seeing more customers as states begin to open up,” Michel told The Federalist. “If we continue to stay closed and businesses don’t have any way to pay those liabilities then it can be hard to come up with that money.”
While businesses can file for an extension on their taxes, this only kicks the problem down the road.
Even as the country begins to open up, states have only begun to partially reopen, keeping many small businesses shut down. The hospitality industry has been hit particularly hard, with 3 percent of restaurants nationwide already gone, according to a survey released from the National Restaurant Association way back in March. Thousands more have likely gone under ever since.
Even as restaurants begin to see a return in revenue, limited seating capacity due to government guidelines has severely cut into already thin profit margins. Add to that public fears of leaving home, wallets stretched thin for dining out, and greater expenses for keeping employees and patrons safe, and the economic carnage is expected to continue.
“It’s better to be reopened, but it’s not just reopening with the same expenses you had in 2019,” Tom Sullivan told The Federalist, who serves as the vice president for small business policy at the U.S. Chamber of Commerce. “There’s going to be more expenses.”
The Chamber has released a four-page guide to help small businesses navigate reopening.