CARES Act for Nonprofits

On Friday, March 27, the President signed the $2 trillion Coronavirus Aid, Relieve, and Economic Security Act (CARES Act) to provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.

How does this act affect nonprofits?

Charitable Contributions

To encourage support of giving to nonprofits, a deduction for charitable cash contributions of up to $300 made in 2020 by individuals who don’t itemize was enacted.  In addition, the existing limit on annual cash contributions for those individuals that itemize has been raised from 60% of adjusted gross income to 100%.   The annual limit for C corporations has been increased from 10% to 25%, and food donations from corporations has been increased from 15% to 25%.

Emergency Small Business Loans

The Act provides funding through emergency SBA 7(a) loans for special emergency loans for eligible nonprofits and small businesses (500 or fewer employees).  The loans may cover payroll support (including paid sick, medical, or family leave, and costs related to the continuation of group health care benefits during those periods of leave), employee salaries, mortgage interest payments, rent (including rent under a lease agreement), utilities, and any other debt obligations that were incurred before March 1, 2020.   Payroll costs do not include the cost of compensation of an employee in excess of an annual salary of $100,000, employees outside of the US, or emergency sick leave or emergency family leave payments that qualify for a credit under the Families First Coronavirus Response Act.  The maximum loan amount available is the lesser of the average monthly payroll costs for the one-year period preceeding the date of the loan or $10,000,000.  There are no personal loan guarantees and no recourse unless the funds are used for unauthorized purposes.  Employers that maintain employment between March 1 and June 30 would be eligible to have their loans forgiven, essentially turning the loan into a grant.  Loans not forgiven are subject to an interest rate not to exceed 4% over a maximum of 10 years.

Economic Injury Disaster Loans

This provision eliminates creditworthiness requirements and appropriates an additional $10 billion to this program so that eligible nonprofits and other applicants can get checks for $10,000 within three days (once the program is up and running). 

Employee Retention Credit

The Act creates a refundable payroll tax credit of up to $10,000 for each employee on the payroll when certain conditions are met.  The credit is effective for wages paid after March 12, 2020 and before January 1, 2021.  The nonprofit has to satisfy one of two tests – (1) have business operations fully or partially suspended operations due to orders from a governmental entity limiting commerce, travel, or group meetings; or (2) experience a greater than 50% reduction in quarterly receipts, measured year over year.  The availability of the credit continues each quarter until the organization’s revenue exceeds 80% of the same quarter in 2019.  The nonprofit’s whole operation must be taken into account when determining a decline in revenues.  Organizations receiving emergency SBA 7(a) loans are not eligible for this credit.

Delay of Payment of Employer Payroll Taxes

Employers may defer payment of 50% of employer payroll taxes attributable to wages paid during 2020 until December 31, 2021 with the remaining 50% deferred to December 31, 2022.  Payroll taxes is only the employer’s portion of social security tax. 

Unemployment

Nonprofits in Indiana pay state unemployment taxes (SUTA) like other for-profit businesses.  However, nonprofits can choose to be a reimbursable employer.  Instead of making regular premium payments, the organization reimburses the fund for benefits paid to former employees.  The CARES Act reimburses nonprofits that have chosen to be a reimbursable employer half the cost of benefits provided to laid off-employees through December 31, 2020.

Posted by: Carrie Minnich, CPA