What’s in the CARES Act for Nonprofits?
Coronavirus Aid, Relief, and Economic Security Act (CARES): What You Need to Know for Your Nonprofit
The CARES Act includes a number of provisions of relevance to non-profit organizations, including: (1) expanded eligibility for non-profits to apply for Small Business Administration (SBA) loans; (2) opportunities for larger non-profits to apply for relief under a new program at the Department of Treasury; (3) expanded unemployment benefits to employees who lose their jobs due to COVID-19; and (4) tax incentives for employers to retain employees during the pandemic.
Nonprofit Eligibility for Small Business Loans and Grants (Paycheck Protection Program.
The CARES Act provides $349 billion for the new “Paycheck Protection Program” (PPP). NOTE: The PPP is open only to non-profit organizations tax-exempt under Section 501(c)(3) or veterans organization tax-exempt under Section 501(c)(19) of the US Internal Revenue Code. All other non-profit organizations are ineligible to participate.
- Date Eligibility: Available to entities that existed on February 15, 2020 and had paid employees or paid independent contractors.
- Nonprofit Eligibility: The PPP is available to any business that has already qualified as a “small business concern,” as well as businesses, 501(c)(3) charities, 501(c)(19) veterans organizations, and tribal business concerns with 500 or fewer employees, counting each individual – full time or part time (not including Full Time Equivalents [FTEs]). The law does not disqualify nonprofits that are eligible for payments under Title XIX of the Social Security Act (Medicaid), but does require that employees of affiliated nonprofits may be counted toward the 500 employee cap, depending on the degree of control of the parent organization.
- Personal Guarantee: No personal guarantee or collateral will be required in securing a loan.
- Loan Amount: The lesser of $10 million or 2.5 times the average total monthly payroll (including benefits) costs from the one-year period prior to the date of application.
- Loan Use: Loan funds can be used to make payroll and associated costs, including health and retirement benefits, facilities costs, and debt service.
- Can these loans be forgiven? Yes, nonprofits that take out these loans can get some or all of their loans forgiven. Generally speaking, as long as employers continue paying employees at normal levels during the eight weeks following the origination of the loan, then the amount they spent on payroll costs (excluding costs for any compensation above $100,000 annually), mortgage interest, rent payments and utility payments can be combined and that portion of the loan will be forgiven. This, in essence, turns the loan into a general operating support grant. Section 1106.
- Impact on other relief provided by stimulus package. By participating in the PPP, however, otherwise eligible entities may become ineligible for other relief provided in the Act. For example, an employer who receives a PPP loan is ineligible for the employee retention credit (detailed below). In addition, as explained below, there are consequences for having the PPP loan forgiven. However, the CARES Act does allow an eligible entity to receive both a PPP loan and an economic injury disaster loan (EIDL) from the SBA under certain circumstances, such as if the EIDL is made before the PPP loans are available and for a purpose other than covering payroll costs.
Changes to the SBA’s Economic Injury Disaster Loans (EIDLs).
Another important aspect of the CARES Act for small businesses is that it expands eligibility for the SBA’s Economic Injury Disaster Loans (EIDLs). In early March, the SBA’s disaster loan program was extended to all small businesses affected by COVID-19, but the CARES Act opens this program up further and makes it easier to apply. These changes include:
- EIDLs are now also available to Tribal businesses, cooperatives, and ESOPs with fewer than 500 employees. They are also available to all non-profit organizations, including 501(c)(6)s, and to individuals operating as sole proprietors or independent contractors.
- EIDLs can be approved by the SBA based solely on an applicant’s credit score.
- EIDLs that are smaller than $200,000 can be approved without a personal guarantee.
- Borrowers can receive a $10,000 emergency grant cash advance that can be forgiven if spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments or repaying obligations that cannot be met due to revenue losses.
Can a nonprofit get an EIDL and a Paycheck Protection Program loan?
Yes, nonprofits can get both an EIDL and a Paycheck Protection Program loan as long as they don’t pay for the same expenses. However, be sure to check with your financial advisor or lender before taking both types of loans if you are not sure of the specifics.
Self-Funded Nonprofits and Unemployment.
Only reimburses self-funded nonprofits for half of the costs of benefits provided to their laid-off employees. Some charitable nonprofits pay state unemployment taxes (SUTA) like other businesses. These organizations pay quarterly taxes based on their “experience rating,” a formula based on the recent history of unemployment claims by their former employees. Charitable nonprofits have the option of electing of self-insuring rather than paying SUTA. Nonprofits that elect to take this option are required to reimburse their state unemployment insurance trust funds for the amount of benefits their terminated or laid off employees claim. Section 2103.
Charitable Giving Incentive
Creates a new above-the-line deduction (universal or non-itemizer deduction that applies to all taxpayers) for total charitable contributions of up to $300. The incentive applies to cash contributions made in 2020 and can be claimed on tax forms next year. Section 2204. The law also lifts the existing cap on annual contributions for those who itemize, raising it from 60 percent of adjusted gross income to 100 percent. For corporations, the law raises the annual limit from 10 percent to 25 percent. Food donations from corporations would be available to 25 percent, up from the current 15 percent cap. Section 2205.
Employee Retention Payroll Tax Credit
Creates a refundable payroll tax credit of up to $5,000 for each employee on the payroll when certain conditions are met. The entity had to be an ongoing concern at the beginning of 2020, experienced a whole or partial shutdown, and had seen a drop in revenue of at least 50 percent in the first quarter compared to the first quarter of 2019. The availability of the credit would continue each quarter until the organization’s revenue exceeds 80 percent of the same quarter in 2019. For tax-exempt organizations, the entity’s whole operations must be taken into account when determining eligibility. Notably, employers receiving Paycheck Protection Program loans would not be eligible for these credits. Section 2301.
Delayed Payment of Payroll Taxes
Allows employers to delay payment of the employer portion payroll taxes in 2020; payable in equal halves at the end of 2021 and 2022. Section 2301.
Loan Support for Larger Entities
CARES also calls for the creation of a loan and loan guarantee program via a new Industry Stabilization Fund specifically targeting “mid-size” organizations, defined as having between 500 and 10,000 employees. This provision, unlike the emergency SBA loan program, does not provide loan forgiveness, but does mandate an interest rate of no higher than two percent and would not accrue interest or require repayments for the first six months. Nonprofits accepting the mid-size business loans must retain or rehire at least 90 percent of their staff at full compensation. Section 4003.
VISIT HERE to download entire Act, H.R. 758, from Congress.gov (854 pages)
Changes to Paid Sick Leave and Paid FMLA Leave from the Families First Coronavirus Response Act
The CARES Act makes small changes to the Families First Coronavirus Response Act (FFCRA) in regards to paid sick leave, paid FMLA and more. These changes include:
- Paid family and medical leave (FMLA) under the FFCRA is capped at $200 per day and $10,000 total per employee.
- Paid sick leave under the FFCRA is capped at $511 per day and $5,110 total per employee. This amount drops to $200 per day and $2000 total for sick leave taken by an employee in order to care for a family member in quarantine or care for a child whose school has closed.
- Workers that were laid off after March 1, 2020, but then rehired, are eligible for paid FMLA leave provisions described in the FFCRA immediately instead of needing to be an employee for 30 days.
- Businesses and nonprofits can keep money that they would have deposited for payroll taxes in anticipation of refunds from the Treasury Department for paid sick leave and paid FMLA leave outlined by the FFCRA, including amounts that would have been refunded later.
The Act also calls for large infusions of cash to the following sectors:
- $150 Action for a state, tribal, and local Coronavirus Relief fund
- $130 Action for hospitals
- $30 Action for education
- $25 Action for transit systems
We Are Here to Help
We will continue to issue information on the CARES Act and other available relief for nonprofits. Also, look for upcoming COVID-19 related webinars.
Please visit the Warady & Davis LLP COVID-19 Resource Center for a wealth of information on stimulus assistance, new legislation and much more. This information is updated daily. This is a rapidly evolving situation so please do not hesitate to reach out to us with any questions or concerns at 847-267-9600.
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