The novel coronavirus, COVID-19, was first discovered towards the end of December 2019.
It is a zoonose. In other words, it jumped from an animal host, more than likely a bat, to a human host. Once in its human host, it evolved to the form that we now know and started spreading rapidly via person-person transmission. At least, this is how scientists presume COVID-19 originated.
Unfortunately, very little is known about this virus, excepting the following three points:
- COVID-19 causes a respiratory illness that can either be mild or so severe that it results in the death of the person who has contracted the virus.
- It is incredibly contagious, and it is running rampant throughout almost every country across the globe.
- One of the only ways to slow down its rapid spread is to practice social distancing or social isolation.
The impact of COVID-19 on global business
As a result, 50% of the world’s population is under varying lockdown or stay-at-home orders. All non-essential businesses have closed, and people are expected to stay at home until the virus outbreak abates.
This shutdown has effectively brought the world’s economy to a halt. Those businesses that can pivot their processes online have done so. And, the staff employed by these companies are working from home remotely. Even so, the World Economic Forum has estimated that this pandemic could cost the global economy circa $1 trillion (USD). And, there are grave fears that the global governments won’t be able to get the world’s economy restarted because this scenario has never occurred before in human history.
The impact of COVID-19 on insurers
Gary Shaw of Deloittes.com highlights in his article titled “Potential implications of COVID-19 for the insurance sector” that “insurers are responding to the widening COVID-19 outbreak on multiple fronts—as claims payers, employers, and capital managers. Each has its own distinct challenges, not just for the insurance industry, but for the economy and society at large.”
As an aside, insurance companies have made it clear that while they are committed to serving their clients, their focus is on keeping their employees healthy and safe. And, like most other businesses, they are being forced to review and update their crisis management plans to improve their business efficiencies in the current pandemic so that they can continue serving their clients.
This aside, there is no doubt that insurance companies are being asked to bear the brunt of this pandemic. Business interruption insurance is part of property insurance. And, it is typically triggered when there is an interruption to normal business operations if the property is damaged as a consequence of a fire or natural disaster. Most insurers have an exclusion clause for viruses like SARS. Some policies do not contain these exclusions, but insurance companies are hesitant to honor COVID-19 claims. Donald Trump, the 45th president of the USA, weighed in on the debate stating that insurers must pay out COVID-19 claims.
COVID-19 claims: The tax implications
As Philip Stein notes, the insurance industry in the United States is preparing itself for massive losses as well as a contraction in earnings for the rest of 2020 and possibly into 2021. Therefore, the question that must be asked and answered is, what are the tax implications of these financial losses?
_________________________Random Success Quotes to Remember ~ “Successful people do what unsuccessful people are not willing to do. Don't wish it were easier; wish you were better..” - Jim Rohn
The good news is that the Federal government passed the Coronavirus Aid, Relief, and Economic Security Act (CARES) on 20 March 2020. In summary, it aims to provide over $2 trillion USD in economic relief to businesses, individuals, state and local governments, and specific-industries that have been hard-hit by the COVID-19 pandemic.
This legislation includes the following company tax provisions:
Employers are entitled to claim a 50% refundable payroll tax credit on wages paid. It is available to businesses that have been negatively impacted by the coronavirus in that they have experienced a decrease of 50% or more of their gross income when compared to the same time last year.
Social security payments
The employer’s part of social security payments may be deferred until January 2021. Half of this amount is payable by 31 December 2021 with the outstanding amount due by the same time twelve months later.
Net operating losses (NOLs)
Companies may take the NOLs earned from 2018 onwards and carry them back for five years. In other words, firms may use the last 5 years’ worth of NOLs to offset their current taxable income.
These are just a few of the many tax breaks offered to businesses that are negatively impacted by the coronavirus pandemic. However, it is worth noting that, even during these challenging times, it is vital to remain tax compliant. Otherwise, your company could lose all the benefits offered by the US federal government.