On March 27, the House unanimously passed and the President signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which is a $2 trillion stimulus law intended to provide immediate relief for the individuals, nonprofits, businesses and state and local governments. The CARES Act is the third law enacted in response to the COVID-19 Pandemic.
The CARES Act provides significant funding for many businesses, schools, government entities and social support programs including non-profit organizations. (The term “nonprofit organization” means an organization that is described in section 501(c)(3) of the Internal Revenue Code of 1986 and that is exempt from taxation under section 501(a))
Paycheck Protection Program Loans – Emergency SBA Section 7(a) loan under Section 1102
For Small Organizations (less than 500 employees)
Available to nonprofit organizations with 500 or fewer employees (counting each individual – full time or part time and not FTEs). The final bill does not include a provision in earlier drafts that would have disqualified nonprofits that are eligible for payments under Title XIX of the Social Security Act (Medicaid).
The Small Business Association (SBA), through participating banks, is making disaster relief loans of up to $10 million available to businesses with less than 500 employees through its Paycheck Protection Program authorized by the new CARES Act. The loans are based on 2.5 times the average monthly payroll, health and retirement benefits for employees for the past 12 months The payroll component of this calculation is capped at $100,000 on an annual basis per employee.
Loan forgiveness is available to employers that maintain employment or rehire employees between March 1 and June 30, essentially turning the loan into a grant. The amount forgiven is based on the amounts actually spent on payroll, benefits, rent, utilities, and interest during the 8-week period immediately after the loan is issued with some limitations based on the levels of employment during the 8-week period versus employment levels prior to the crisis.
For Mid-Sized Organizations (500 to 10,000 employees)
The stimulus bill 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.
Economic Injury Disaster Loans (EIDL)
Creates emergency grants for eligible nonprofits and other applicants with 500 fewer employees enabling them to receive checks for $10,000 within three days. This advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. This loan advance will not have to be repaid. https://covid19relief.sba.gov/#/
Please note that businesses cannot utilize both EIDL and PPP loans for the same expenses. We urge all organizations to work closely with their advisors, accountants, and lawyers to navigate the rules of these loans.
Donor Contribution Incentives
The CARES Act provides donors the ability to make a $300 (cash only) contribution to qualifying charities and receive an above the line deduction to their adjusted gross income for tax years beginning 2020 and beyond. This is available only for those taxpayers who take the standard deduction and cannot be for gifts to private foundations or donor advised funds.
Providing this large group of taxpayers a way to receive a tax benefit from their charitable contributions has been big focus of the nonprofit community, especially since the 2017 tax law change that significantly reduced the households who could itemize their deductions. While the $300 cash limit is modest, the benefit is permanent and now the door is open to potentially increase the amount over time.
For those taxpayers who do itemize their deductions, the CARES Act provides a temporary suspension for 2020 on the limit of the charitable deduction for cash contributions to qualified charities, which ordinarily is 60% of their adjusted gross income. The limit on deductions for cash gifts from corporations is temporarily increased from 10% to 25% and from 15% to 25% for food inventory donations.
Qualified Charitable Contributions (QCD)
While the CARES Act did not directly address QCDs, there may be an unintended negative consequence from the temporary relief of required minimum distributions for IRA owners for 2020. The intention of this aspect of the law is to allow IRA owners a grace period so that their account values may recover from the current financial market crisis as was done in the wake of the 2008-2009 bear market. Certainly, those IRA owners aged 70½ and older can continue to make QCDs to qualified charities and avoid federal income tax on the distribution, but without the mandatory withdrawal they may feel less inclined.
The CARES Act and Nonprofits
These are difficult times for nonprofits as they strive to serve their communities, protect their volunteers and employees, and plan for an uncertain future. Assistance is available within the CARES Act that is designed to help bridge the gap while social distancing is the new normal. Changes to charitable giving rules are a recognition that nonprofits need an infusion of cash as they respond to the COVID-19 crisis at a time when many are seeing a loss of revenues due to the cancellation of fundraising events and decline in reimbursed services.
Additional Important Disclosure
The rules regarding these programs are fluid and subject to change as they are still being finalized.
Important disclosure information
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