The CARES Act and Nonprofits: What You Need To Know
As Americans continue to grapple with the devastating effects of the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (CARES) was signed into law on Friday, March 27. CARES contains 880 pages of stimulus intended to bolster the economy through benefits aimed at individuals and businesses alike. But how will CARES help the nonprofit community, which relies so heavily on the generosity of donors in order to fulfill missions and perform services? Although advocates are still seeking $60 billion in stimulus aimed directly at nonprofits, there are a number of provisions included in CARES that may help aid nonprofits through these uncertain times.
The first of these is an above the line deduction of up to $300 for qualified charitable contributions. Previously, individuals were only able to deduct contributions if they itemized deductions on their personal returns. As a result of the 2017 tax law changes, the number of individuals who did so dramatically declined. CARES will allow for this deduction regardless of whether they will be itemizing their deductions, but only for the 2020 tax year. For those that do still itemize, CARES provides an increase in the Adjusted Gross Income cap from 60% to 100%. On the corporate side, the cap is raised from the historical 10% to 25%.
Small Business Administration Loans
Loans are available from the Small Business Administration (SBA) for nonprofits with 500 or fewer employees to pay for payroll, health-insurance premiums, facilities costs and debt service. The amount of the loan is calculated based on a formula of a portion of payroll costs for the previous 12 months, not to exceed $10 million. Organizations can apply for loan forgiveness, with the amount forgiven pro-rated based on any reduction in the number of employees from February 15 through June 30. The SBA will also have $10 billion for the Economic Injury Disaster Loans program (EIDL), which will waive credit worthiness requirements and provide $10,000 checks if eligible.
Payroll Tax Credit
Nonprofits with an ongoing concern in the first quarter of 2020 because of a 50% or more drop in revenue compared to the first quarter of 2019 would be eligible for a refundable payroll tax credit of up to $5,000 per employee. The credit is based on qualifying wages as defined in CARES, and organizations can continue to receive these credits until the current quarter’s revenue exceeds 80% of that from the same quarter of 2019, but no further than the quarter ended December 31, 2020. However, these credits are not available to employers who are receiving emergency loans from the SBA.
Employer Payroll Tax Deferral
Employers will also be allowed to defer the payment of their portion of the Social Security tax on wages paid through January 1, 2021. Half of the deferred amount is to be paid by December 31, 2021 and the remaining half by December 31, 2022.
Like many other organizations struggling right now, if a nonprofit is forced to lay off its employees, the organization may be facing a substantial liability if it has chosen to self-insure and is therefore required to reimburse the state for benefits paid to those laid off. CARES provides for the transfer of funds into State Unemployment Trust Funds so that the state can provide reimbursement of up to 50% of the costs of benefits paid to those laid off if this is the case. Since CARES provides that the Secretary of Labor may issue clarifying guidance to allow States to interpret their laws in a manner that would provide maximum flexibility, here we will need to wait to see how this is handled by each state.
This is a good first step by the government to provide some relief to nonprofits during the COVID-19 pandemic. Hopefully legislators will listen to the appeals of nonprofit advocates to provide additional relief in the coming months. Until then, please reach out to BBD if we can help.
We hope that you, your families and colleagues remain safe and healthy.