On Friday, March 27, 2020, President Trump signed the “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act) into law. The $2.2 trillion Act is designed to provide relief to workers and businesses impacted by the current COVID-19 crisis. Many nonprofit associations are hailing the CARES Act for the provisions that will benefit nonprofits and faith-based organizations crippled by the current economic climate, related bans on large gatherings, as well as post-2017 tax law changes.
Following are some of the highlights of the nearly 900-page bill which will be of interest to nonprofits and churches. Many questions remain as to the implementation of these provisions. We will be continually monitoring additional guidance as it is released and will provide updated information on this page as it becomes available.
Charitable Giving Incentives for Donors
For individual taxpayers, Section 2204 of the Act creates an above-the-line “universal” deduction for payments made to charitable organizations. Unfortunately, the bill caps the deduction at $300. Nonprofit groups had lobbied for an “uncapped” deduction. It is currently unclear if this provision applies beyond tax year 2020.
The final version of the stimulus bill also includes a provision that would help generous individual donors and corporate givers by eliminating the percent of AGI limits for charitable deductions. For individuals, the 60% of adjusted gross income limitation is suspended completely for 2020. For corporations, the 10% limitation is increased to 25% of taxable income.
Payroll Protection Loans
For the period from February 15, 2020 to June 30, 2020, Title I of the Act allows the Small Business Administration to provide 100% federally-backed loans up to $10 million to eligible (500 or fewer employees) organizations. Churches and religious organizations seem to qualify, as do nonprofits organized under section 501c(3) of the Internal Revenue Code. The loan amount is generally 2.5 times the average total monthly payroll costs incurred in the one-year period before the loan is made.
In determining payroll costs, the following are included:
- Salaries and other wages
- Employer-paid health care benefits
- Employer-paid retirement benefits
- Employer-paid state and local payroll taxes
In determining payroll costs, the following are excluded:
- Compensation of an employee in excess of an annual salary of $100,000
- Federal payroll taxes
- Compensation of an employee whose principal place of residence is outside of the U.S.
- Emergency sick leave or emergency family leave payments that qualify for a credit under the Families First Coronavirus Response Act
There are no personal loan guarantees and no recourse to any individuals unless the loan funds are used for an unauthorized purpose. There are very few borrower requirements to obtain a loan under the new program. Those requirements include:
- a good-faith certification that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the borrower
- the funds will be used for payroll costs, paid sick, medical, or family leave, mortgage interest (but not principal), interest on other debt obligations incurred before February 15, 2020, rent, and utilities
- the borrower was in operation on February 15, 2020
- the borrower had employees for whom it paid salaries and payroll taxes, or independent contractors as reported on Forms 1099-Misc, as of February 2020
Furthermore, employers that maintain employment between March 1 and June 30, 2020 are eligible to have their loans forgiven, essentially turning the loan into a grant. The forgiveness amount is reduced by an amount calculated under a formula designed to measure whether the borrower reduced its workforce during a specific period in early 2020. Amounts not forgiven are subject to an interest rate not to exceed 4% over a maximum of 10 years.
Economic Injury Disaster Loans (EIDL)
Section 1110 of the Act eliminates creditworthiness requirements and appropriates an additional $10 billion to the EIDL program so that eligible nonprofits and other applicants with 500 or fewer employees can get checks for $10,000 within three days.
Employee Retention Payroll Tax Credit
Section 2301 of the Act creates a refundable payroll tax credit (offset against an organization’s social security tax liability) of up to $5,000 for each employee on the payroll when certain conditions are met. For employers with more than 100 full-time employees, only employees who are currently not providing services for the employer due to COVID-19 causes are eligible for the credit. The employee retention credit is effective for wages paid after March 12, 2020, and before January 1, 2021.
Eligible employers must have carried on a trade or business during 2020 and satisfy one of two tests:
- Have business operations fully or partially suspended due to orders from a governmental entity limiting commerce, travel, or group meetings
- Experience a year-over-year (comparing calendar quarters) reduction in gross receipts of at least 50%. For churches and nonprofit organizations, the entity’s whole operations must be taken into account when determining the decline in revenues
Notably, employers receiving payroll protection loans would not be eligible for these credits.
Delayed Payment of Payroll Taxes
Section 2301 also allows employers to delay payment of the employer portion of FICA taxes in 2020; payable in equal halves at the end of 2021 and 2022.
Unemployment for Self-Funded Nonprofits
Section 2103 of the Act provides for reimbursements to self-funded nonprofits for half of the costs of benefits provided to their laid-off employees. This benefit relates to nonprofit organizations who have elected the reimbursement method with respect to unemployment insurance coverage.
Please contact JHM with additional questions. Again, we will monitor and provide updates as guidance comes available.