Your Best Guide for Government Shutdown Updates

Like a company, the United States government relies on a budget for each fiscal year. Shutdowns frequently occur at the end of the year because of laws passed in the 1970s that mandate the government shut down. Especially if Congress is unable to pass all appropriation bills for the following year’s spending. After 2022, a shutdown was narrowly avoided by Congress and the current administration.

However, shutdowns can occur as a result of regional or domestic crises, as the COVID-19 pandemic demonstrated. Businesses around the nation were forced to close down, to abide by government directives to stay at home and gathering bans.

Government shutdowns have an effect on the economy as a whole, small enterprises, nonprofit organizations, and people who use government services. Many people rely on programs and services to get by. And when these services are unavailable or financial transactions are delayed, both people and businesses may suffer. This is why the pandemic, which prompted closures without a set end date, resulted in the development of numerous new financial assistance programs.

Everything you need to know about government shutdowns is included in this blog post.

A Government Shutdown: What Is It?

Each fiscal year, to fund the following year, Congress must approve appropriations. The president then signs the budget legislation.

For each of the 12 appropriations subcommittees, there are 12 appropriations bills. And when these funding bills are not passed by the deadline each year, federal agencies are forced to halt some services until they do. There have been 21 funding shortfalls since 1976, which include partial or complete shutdowns of the government lasting anywhere from one day to 34 days.

However, not all services end if the government does. These are some of the crucial services that are still operating:

Social Security contributions
Payments under Medicare and Medicaid
Hospital-based medical care
Legal action
Upkeep of the electricity grid

Even though these services often continue when the government is shut down, there may be major delays in delivering the regular services and certain connected services may shut down. In the case of a shutdown, every federal agency has a plan in place, One that details which services would be provided and which employees will be placed on furlough.

National parks may stop welcoming visitors, the Environmental Protection Agency (EPA), for instance, might stop conducting routine site inspections, and the National Institutes of Health (NIH) might stop accepting new patients.

During a government shutdown, employees who are suspended do not get paid. And are unable to work, but they are still entitled to back pay. The Government Employee Fair Treatment Act modified this element in 2019. During previous shutdowns, some government workers persisted in their duties. Even if they weren’t getting paid when they normally would have.

COVID-19 and Government Shutdowns

Not every government shutdown is a result of the budget being approved for the upcoming fiscal year. Everything was shut down at the start of the COVID-19 pandemic in 2020 so that people may stay at home and prevent the virus’ spread. All types of businesses were required to temporarily close their doors to follow the demands.

These closures had a particularly negative impact on some businesses. According to the Bureau of Labor Statistics, the following industries were the most vulnerable in 2020:

Entertainment, such as theme parks and gambling
Supper clubs and bars
Suppliers of personal services, such as barbers and dentists
Department stores and car dealerships are examples of sensitive retail.
Transportation and travel

Government orders and shutdowns due to COVID significantly impacted businesses and government institutions across the. Even if limitations are no longer in place, many businesses are still struggling to survive. And, tragically, some have been forced to close their doors forever.

The Employee Retention Tax Credit (ERTC) is one of the sorts of aid that the government developed to assist businesses during the pandemic. It’s possible that you can still apply for and get the ERTC for 2020 and 2021.

7 Effects of a Government Shutdown on Businesses

Small enterprises depend on a consistent flow of revenue. But they may also rely on government subsidies. When the government is shut down, both of these sources of income may suffer. Here are seven of the most important effects on businesses that a shutdown would have:

1. Slow Processing of Loan Applications

When the government is closed, the Small Business Administration (SBA) normally halts the processing of small business loan applications for its most important lending programs. The applications cannot be reviewed or approved by furloughed personnel.

2. Deteriorating IRS Tax Services

If the government shuts down, taxes must still be paid. But the IRS will encounter delays when contacting people, processing modified tax forms, delivering cash refunds, and carrying out audits.

3. Long Hiring Wait Times

Verifying applicants’ legal right to work in the United States is a crucial step in the recruiting process. Employers utilize the federal system E-Verify to check applicants’ eligibility online. But it is unavailable during a government shutdown. As a result, there will be pauses and delays in the employment process.

4. Delays in Public Contracts

In the case of a shutdown, government contracts for things like grants and perks could suffer. This implies that these contracts may prevent small enterprises from receiving finance on schedule. This can be a huge, even crippling loss for many firms that rely on government support to operate.

5. Abolition of Business Activities

Because of a government order during the pandemic in 2020 and 2021, many businesses were forced to close. The government ordered people to stay at home instead of going about their daily business. But it also mandated that non-essential enterprises close down completely at that time. While some professions can be performed remotely, a government shutdown makes it impossible for businesses in some sectors, including hospitality, travel, and entertainment.

6. Revenue Loss

When they are unable to satisfy their clients, businesses swiftly lose money. Depending on how long restrictions or government shutdowns last, they can continue to lose a lot of money. This revenue loss may result from being unable to serve federal employees, as may happen at a café near a government agency. Or from having to temporarily close due to pandemic restrictions. According to one estimate, the nation’s small business revenues decreased by 22% in April 2020, or $4.6 billion, for just one month.

7. There Aren’t Any Health and Safety Administration Inspections

To address accidents or fatalities that occur at work, the Occupational Health and Safety Administration (OSHA) performs workplace inspections. While some states do have laws in place for educational institutions and municipal governments that would let inspections continue during a federal shutdown, these inspections cease during a shutdown.

A government shutdown could have a lot of detrimental effects. Especially on small businesses. Numerous groups have struggled during prolonged or total shutdowns and during the COVID-19 limitations imposed on the country. Find out how you can still receive relief by speaking with a tax credit expert.

Why Consult a Professional?

In times of economic uncertainty, which might include government shutdowns and restrictions, business owners need all the assistance they can get.

Businesses and individual taxpayers have been able to benefit from tax incentives and financing programs for further support as a result of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the Consolidated Appropriations Act, and other laws passed during the epidemic.

To learn more about your choices for employee retention credits, get in touch with Your Part Time Accountant right away.