Updated March 19, 2020
We want to bring you an update about the current economic recovery proposals being pushed by the hotel industry with Congress to address the effect of the COVID-19 coronavirus on the viability of business moving forward.
The below summaries note the proposals at the federal level, which are evolving by the hour to address the draconian challenges we are all facing as business operators.
It is important to know that the need for tax relief, government grants, and other payment forbearance options are being explored at every level including city, county, and state government.
Employee Relief via paid sick leave, paid leave, and expanded unemployment insurance coverage
Congress just passed the Families First Coronavirus Response Act today, and we expect President Trump to sign it shortly. THLA is still analyzing the bill, but here are some basics, as provided by this Fisher Phillips article:
- The FMLA has been temporarily expended to all employers with fewer than 500 employees.
- Employees may take up to 12 weeks of protected job leave to care for children if the child’s school is closed.
- The first 10 days of an employee’s FMLA leave may be unpaid (or the employee may take accrued paid leave like a vacation or sick time). After those 10 days, the employer must pay full-time employees at 2/3 of the employee’s regular rate of pay. This is capped at $200 per day and $10,000 total per employee.
- Non-full time employees are entitled to be paid based on the average number of hours the employee worked for the six months prior to taking FMLA.
- Employers with 25 or more employees will have the same obligation as under traditional FMLA to return any employee who has taken Emergency FMLA to the same or equivalent position upon the return to work.
- Emergency paid sick leave.
- Employees will eligible for paid sick leave if the employee is subject to a quarantine or isolation order, showing symptoms, caring for an individual, or caring for a child if the child’s school is closed.
- Employers with fewer than 500 employees must provide full-time employees with 80 hours of paid sick leave, at either the employee’s regular rate of pay, or two-thirds the employee’s regular rate of pay–depending on the reason for the leave. Paid sick leave wages are limited to $511 per day up to $5,110 total per employee for their own use and to $200 per day up to $2,000 total to care for others and any other substantially similar condition.
- Employers will get some tax credits to help cover some parts of paid sick leave and FMLA leave.
Emergency SBA Bridge Loans
March 20 update: All of Texas is now on the SBA’s list. Apply here.
March 19 update: The SBA is currently experiencing a problem processing applications for Texas. We will post an update when there is a resolution.
March 18 update: Disaster Loan Assistance for Texas has been approved. Apply here.
In order for Texas businesses to become eligible for emergency, low-interest bridge loans from the SBA to help you pay immediate costs such as your mortgage and payroll, a business from each of Texas’s 254 counties needs to show the SBA it has been negatively affected by the COVID-19 coronavirus. This has been done, and Governor Abbott sent the letter requesting access to loans on March 17. We’re waiting for SBA to approve the process so Texas businesses can start applying for aid.
Allow Corporations Experiencing Coronavirus-Related Financial Distress to Defer Tax Liability
Deferral of federal income taxes paid by businesses could reduce the adverse financial impact and likely reduce loss of employment.
- This proposal would allow corporations to defer a portion of their 2020 federal tax liability, to be paid over the following five tax years. The percentage of deferrable tax would be based on the percentage that the business’ gross income declined in 2020 compared to 2019, multiplied by two—but not to exceed 100% (e.g.; 50% decline in gross income results in a deferral of 100% of 2020 federal tax liability).
- A deferral of tax attributable to Cancellation of Debt income was provided in the wake of the 2008 financial crisis to assist businesses experiencing financial distress. While the coronavirus introduces similar financial distress, it is not expected that COD income will be as prevalent as what occurred in the 2008 financial crisis and therefore an alternative formula is suggested.
Allow a Five Year-Carryback of the Net Operating Loss (NOL) Deduction
Re-authorizing the carryback of NOL would help businesses mitigate the harm of declining revenue. In the wake of 9/11 and the 2008 financial crisis, Congress temporarily extended the NOL deduction carry back period from two to five years.
- The carryback would temporarily allow taxpayers to carry back net operating losses over the previous 5 years. A business incurs a net operating loss (NOL) when its taxable income is negative. The year in which the NOL is realized is referred to as a “loss year.” Businesses have no tax liability in a loss year.
- Before 2018, businesses could carry back an NOL to obtain a refund for taxes paid in the prior 2 years of the loss or carry it forward 20 years to reduce taxes owed in the future. The 2017 tax bill eliminated the ability for taxpayers to carry back an NOL, while allowing an NOL to be carried forward indefinitely.
Delay the Deadline for Estimated Quarterly Federal Tax Payments and Filings
As businesses experience financial volatility due to the coronavirus, the current quarterly payment schedule may make it difficult for them to manage cashflow for operational demands.
- This plan would delay the federal April 15th tax payment and filing due dates for two months for businesses.
- In the past, the IRS delayed payment and filing deadlines for businesses affected by major disasters—including in response to Hurricanes Irma and Maria.
Provide an Employee Retention Credit
An employee retention credit would help travel-related businesses keep employees on the payroll. Similar relief was provided in the wake of Hurricanes Harvey and Irma.
- The credit would provide a temporary business tax credit worth 40 percent of wages (up to $6,000 of qualified wages per employee) paid by a qualified employer to an employee, for a maximum credit of $2,400 per employee.
- A qualified employer would be defined as an employer primarily engaged in the business of foodservice, lodging, retail, automobile rentals, air transportation, amusement, entertainment, recreation, accommodation for mass gatherings of persons or distribution of travel services.
Provide a Temporary Employee and Self-Employed Payroll Tax Cut
- The payroll tax cut would cut the employee and self-employed shares of Social Security payroll taxes by two percentage points (from 6.2% to 4.2% for employees; and from 12.4% to 10.4% for the self-employed). The Social Security Trust Fund would be held harmless through a transfer of general revenue.
- A temporary payroll tax cut was provided in the wake of the 2008 Financial Crisis. Workers received more pay in each paycheck immediately through a reduction in payroll tax withholdings.
Create a Temporary Travel Tax Credit
Incentives are needed to decrease the time it takes to achieve recovery in travel spending in the U.S.
- This plan would create a new tax credit to incentivize domestic business and leisure travelers to travel within a specified time frame, similar to what was done through the homebuyer tax credit in the wake of the housing crisis.
- The tax credit would be worth 50 percent of qualified travel expenses incurred in the U.S. between May 1st and December 31st, 2020, up to a maximum tax credit of $2,000 per household. Qualified travel expenses include any expense over $50 that is incurred while traveling away from home, with language to explicitly reference expenses related to meals, lodging, recreation, transportation, amusement or entertainment, business meetings or events, and gasoline. The credit is not allowed if the taxpayer receives a refund for the expense within the taxable year or if the taxpayer is a dependent.
Federal Boost in Community Development Block Grants to Promote Healthy Travel
- Provide $1 billion in flexible Community Development Block Grant (CDBG) funds to assist State and local destination marketing organizations to address economic recovery needs in areas most impacted by a decline in tourism, air service reductions, conference and event cancellations, or fears of the coronavirus.
- CDBG grantees will use these funds to design and carry out domestic travel promotion campaigns that encourage travel to low-risk destinations and healthy travel practices.
- Similar provisions included in economic recovery packages after 9/11, Hurricane Katrina, and other disasters.
Restore the Entertainment Business Expense Deduction
Trade shows, conferences, and group meetings account for more than 25% of all domestic travel, and an ever-increasing number of such events have already been cancelled due to fears of the coronavirus.
- Restore the entertainment business expense deduction for two years, allowing businesses to deduct the cost of ordinary and necessary business expenses at art and entertainment facilities, if such expenses are directly related to the active conduct of a trade or business. The deduction would be worth 100% of eligible expenses in the first year, and 50% in the second year.
- The 2017 tax bill (P.L. 115-97) repealed the deduction for business expenses at art and entertainment facilities, while still maintaining the deduction for meals consumed on business travel.
We are continuing to explore and advocate for all these options and more. We welcome the opportunity to visit with you about these proposals and additional ideas you may have. Please contact us.