COVID-19 tax provisions were intended to help employers and the self-employed maintain payroll and deal with health-related leave. But we found that some small business owners struggled to take advantage of these tax provisions—in part because they didn’t know how.
Our review of relevant tax forms found that claiming the provisions is a complex process. Small business representatives said it’s difficult to get clear information from the IRS and access professional tax help.
We recommended that the IRS evaluate how it can improve outreach to small businesses, particularly when tax provisions are introduced or changed.
What GAO Found
The Internal Revenue Service (IRS) does not collect data on taxpayers, including small business owners, about their race, ethnicity, or gender. This makes it difficult to determine whether the use of taxes varies by demographic group. In the absence of these data, GAO used data from other federal agencies, other taxpayers, and specific analytical methods to help identify or estimate the respective demographic characteristics of taxpayers.
GAO analyzed the use of COVID-19 tax provisions—specifically, paid sick and family leave credits and payroll tax deferrals for employers and the self-employed, as well as the Employee Withholding Credit—among a study population of sole proprietorships in tax. year 2020. GAO matched data from different agencies to identify the registered gender of business owners and estimated race and ethnicity of selected taxpayers using an imputation method. This may interest you : 5 Losses to Avoid When Growing or Growing a Business. This method calculates the probability that a person with a given surname and place of residence will identify with selected racial and ethnic groups.
GAO found limited use of the tax provisions by small businesses. Less than 7 percent of eligible small businesses within the study population used the employer and self-employed leave credits or payroll tax deferrals. GAO also found some estimated differential use of business ownership demographics within the study population. For example
Almost all of the small business organizations GAO interviewed identified a poor understanding of the tax provisions as a possible cause of the limited use, especially among very small businesses. The GAO analysis also identified information and recordkeeping requirements as a potential barrier contributing to limited use. IRS has provided information to small businesses about the provisions and has used a number of measures to assess its reach, such as informal feedback and compliance data. However, GAO determined that these initiatives did not provide meaningful and complete information.
A January 2021 Executive Order on advancing racial equity directed agencies to evaluate their programs and policies to determine whether they perpetuate systemic disparities between groups. Further, the Treasury Department’s strategic plan includes equity goals involving outreach and education to underserved communities. Enhanced evaluation of ongoing outreach efforts could help IRS develop information useful to groups with different needs, including very small businesses and owners of diverse demographic backgrounds. While the eligibility period has passed for these COVID-19 provisions, an assessment of reach could also improve IRS preparation for communicating tax relief information in future emergencies.
Why GAO Did This Study
The COVID-19 pandemic has resulted in significant disruption to the US economy. Congress enacted tax provisions in pandemic relief efforts to support businesses. On the same subject : Intel shutting down its Optane memory business. However, little is known about the effects of these tax policies on the demographic backgrounds of business owners.
The CARES Act includes a provision for GAO to report on its ongoing efforts to monitor and control COVID-19. GAO was also asked to review the effects of selected tax policies on small businesses by race, ethnicity, and gender as part of this oversight.
This report, among other things, assesses use of selected COVID-19 tax provisions by race, ethnicity, and gender by small business owners. It also assesses potential barriers in accessing COVID-19 tax provisions among small businesses.
GAO analyzed data from the IRS, the US Census Bureau, and the Social Security Administration; reviewed literature on analytical methods; and interviewed representatives of small business organizations and agency officials.
GAO recommends that the IRS evaluate its outreach to very small businesses and owners with diverse backgrounds, using relevant and complete information, to inform future outreach. On the same subject : ZKW equips the new all-electric Volvo C40 with high-tech lights. IRS agreed with this recommendation, noting the complexity of assessing achievement in the absence of demographic data.
Recommendations for Executive Action