Much of the economy is reeling from the novel coronavirus (COVID-19) pandemic, and the not-for-profit sector is not immune from the effects. Fortunately, Congress recognized this need when drafting the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The law, enacted in late March 2020, contains several provisions that might help distressed not-for-profit organizations weather the storm.
Forgivable SBA loans
Charitable and veterans’ not-for-profit organizations with 500 or fewer employees are among the organizations that qualify for the Small Business Administration’s (SBA) Paycheck Protection Program (PPP). The program extends two-year, low-interest loans that are subject to 100% forgiveness if certain requirements are met including using at least 75% of the funds on payroll costs.
The program was set up on a first-come, first-served basis, and the first round of funding of $349 billion was claimed in less than two weeks. An additional second round of funding of $310 billion was approved with limited funds remaining as of the date of this article.
Related Read: Paycheck Protection Program: Loan Forgiveness Application Released
Other loan options
The CARES Act also expands the existing SBA Economic Injury Disaster Loan (EIDL) program to provide small businesses (generally with less than 500 employees) suffering a temporary revenue loss with an immediate $10,000 advance upon applying for the EIDL loan. If the loan application is denied, the applicant keeps the advance as a grant. The SBA has simplified the application process and relaxed credit standards.
The program is available to “private nonprofit organizations,” including faith-based organizations. Not-for-profit organizations can apply EIDL funds to cover paid sick leave, payroll, mortgage, rent and other debts, as well as other costs.
Unlike PPP loans, EIDL loans are not subject to forgiveness. The interest rate is 2.75% for not-for-profit organizations, and loans can be up to $2 million. Repayment periods up to 30 years are determined on a case-by-case basis and payments are automatically deferred for one year.
This program also quickly ran out of money and was also bolstered by the CARES Act amendments, which added $50 billion in loans and $10 billion in grants to the program. However, without even more funding, this program may likely be out of available funds soon.
The CARES Act also creates an Industry Stabilization Fund for larger not-for-profit organizations with 500 to 10,000 employees that retain or rehire at least 90% of their workforce at full compensation and benefits. The fund will provide loans at an interest rate of no more than 2%, with no interest accrual or repayments for the first six months.
Employee Retention Credit
As part of the CARES Act, a new refundable credit against payroll tax is available to employers whose:
- Operations were fully or partially suspended due to a COVID-19-related governmental order; or
- Gross receipts are less than 50% compared to the same quarter of 2019.
Employers, including 501(c) organizations, with more than 100 employees are eligible for the credit for employees not providing services (or whose hours have been reduced) because of the previously mentioned suspension of operations or reduction in gross receipts. Those employers with 100 or fewer employees can qualify for the credit whether or not employees are providing services.
The credit is equal to 50% of up to $10,000 in compensation (resulting in a maximum credit of $5,000 per employee) including health care benefits that is paid to an eligible employee from March 13, 2020, through December 31, 2020. Employers that received a PPP loan do not qualify for the Employee Retention Credit.
Related Read: The Employee Retention Credit and Deferral of Employer Social Security Tax
Payroll tax deferral
The CARES Act allows an employer to defer the payment of the employer share (6.2% of wages) of the Social Security payroll tax that would otherwise be due during the period March 27, 2020 to December 31, 2020. Employers can pay 50% of the amount deferred by December 31, 2021 and the remaining 50% by December 31, 2022. This deferral is available to employers who borrowed funds through PPP but are only permitted to defer these taxes until such time that their PPP loan is partially or completely forgiven.
Breaks for gifts from contributors
The CARES Act temporarily expands the availability of business and individual charitable contribution deductions. Individual taxpayers who do not itemize deductions can take advantage of a new $300 deduction for cash contributions to qualified charities in 2020. Contributions to donor-advised funds do not qualify.
The CARES Act also loosens the limitations on charitable deductions for individuals’ cash contributions made in 2020, boosting it from 60% to 100% of adjusted gross income. And the limitations for businesses was increased from 10% to 25% of taxable income.
These programs are only some of the many COVID-19-related relief options available to not-for-profit organizations. The guidelines surrounding these and other relief options change frequently. We recommend you reach out to your ORBA advisor for any questions and latest updates that may be of help to your organization.
For more information on charitable deductions, contact James Quaid at [email protected], or call him at 312.670.7444. Visit ORBA.com to learn more about our Not-For-Profit Group.