CARES Act Aid for Organizations
Several provisions of the CARES Act offer nonprofits the opportunity to obtain loans and/or grants to assist with cash flow needs relating to the COVID-19 virus.
Forgivable Paycheck Protection Loans
Nonprofit 501(c)(3) and 501(c)(19) organizations with fewer than 500 employees can obtain emergency loans (called “paycheck protection loans”) of up to $10 million funded by the Small Business Administration, but capped at 2.5 times “average monthly payroll costs” (as defined in the CARES Act) to allow the organization to cover payroll, rent, utilities, and certain other operating costs. If the nonprofit organization maintains specified employment and wage levels, the loan is fully forgiven (essentially becomes a grant). However, the required employment and wage levels require careful analysis to ensure that certain forgiveness reductions don’t apply. These loans are obtained through commercial banks, and the SBA is waiving fees it usually collects for SBA loans. In addition, even though the SBA will be providing a 100% guaranty of these loans, the SBA is waiving its usual personal guaranty and collateral requirements for these paycheck protection loans.
Economic Injury Disaster Loans and Grants
Nonprofits having fewer than 500 employees that are impacted by COVID-19 are eligible to apply for SBA Economic Injury Disaster loans (“EIDL”). The maximum loan amount under the EIDL program is $2,000,000 per borrower, and the annual interest rate for nonprofit borrowers is 2.75%. When applying for a loan under EIDL, the borrowing entity can request an emergency grant of up to $10,000 to pay for payroll, rent, utilities, and other identified operating costs. This grant would not need to be repaid, even if the organization’s request for an EIDL is denied.
Entrepreneurial Development Grants
Under the CARES Act, “resource partners” may apply for grants to provide education, training, and advisory services to small business clients who have been negatively impacted by COVID-19 in one or more of the following ways: supply chain disruptions, staffing challenges, decreases in revenue or customers, and/or business closures. Resource partners include small business development centers, state and local agencies, public and private institutions of higher education, and nonprofit women's business centers. Grant funding may be used for advising covered small businesses on accessing Federal resources, COVID-19 prevention, mitigating the effects of COVID-19 on supply chains and product sales, teleworking, and similar topics.
Payroll Tax Benefits
Like other organizations, nonprofits will be able to defer making deposits of the employer’s share of the Social Security Tax (6.2% portion of the FICA taxes). The delay will apply to deposits that would normally be due during 2020. Fifty percent of the deferred payroll taxes must be deposited by December 31, 2021, and the balance must be deposited by December 31, 2022. There is no deferral of the employer’s share of the Medicare tax.
In addition, nonprofits will be eligible for a credit against its payroll taxes equal to 50% of wages paid from March 13, 2020 to December 31, 2020. If the organization has 100 or fewer employees, the credit is given to up to $10,000 of wages for each employee; and if the organization has more than 100 employees, the credit is given only for employees who are unable to provide services by reason of the pandemic.
Charitable Giving Incentives
Beginning in tax year 2020, the CARES Act permits individual taxpayers who do not itemize their deductions to nonetheless claim up to $300 in charitable cash contributions. In addition, the cap for individuals who itemize their deductions has been raised from 50% of adjusted gross income to 100%. Further, corporations will be able to deduct charitable contributions up to 25% of their taxable income, as compared to 10% previously.
Other New Requirements Affecting Employers - FFCRA
Nonprofit employers should also be aware of new paid leave requirements, amendments to the Family and Medical Leave Act, and employment tax credits contained in the Families First Coronavirus Response Act, which was signed into law on March 18, 2020. Read AMM’s analysis of these provisions here.
CARES Act Provisions for Individuals
The CARES Act also includes provisions that directly impact individuals, including those employed in the nonprofit community.
Individual Cash Payments
U.S. residents who are not claimed as a dependent on another person’s tax return are eligible for a Federal tax rebate, which is to be disbursed automatically to the taxpayer as a direct cash payment. In order to qualify, an individual’s adjusted gross income must be below $75,000. For taxpayers filing as head of household, adjusted gross income must be below $112,500, and for married couples filing jointly, the total adjusted gross income cannot exceed $150,000. The amount of the rebate is $1,200 per individual, $2,400 for joint filers, plus $500 per child.
The CARES Act provides for supplemental Federal unemployment compensation of $600 per week for up to four months. This compensation supplements state unemployment payments.
Retirement Account Provisions
Under the CARES Act, the 10% penalty on premature withdrawals is waived for up to $100,000 of distributions to participants: (i) who are diagnosed with COVID-19, (ii) have a spouse or dependent diagnosed with COVID-19, or (iii) who undergo adverse financial conditions resulting from being quarantined, being furloughed, being laid off, having hours reduced, or being unable to work due to lack of child care. Self-employed individuals may be eligible for the penalty waiver if their business was subject to closure or reduced hours.
While the premature distribution will be taxable, the reporting of the income can be spread over three tax years, and if the distribution is repaid within three years, then it will be treated as a rollover, and not be taxable.
The required minimum distribution rules for most retirement accounts are generally waived for 2020.
We will continue to monitor all COVID-19 legislation and policy changes and provide updates.