CARES Act: How will this Impact Nonprofits?March 26, 2020
The latest response to the coronavirus outbreak is the Coronavirus Aid, Relief, and Economic Security or CARES Act. How exactly will this impact the tax exempt sector?
The Coronavirus Aid, Relief and Economic Security, or CARES Act has passed the Senate and is currently in the House for approval. Due to the urgent nature and need for this support, it is expected to be passed by the House and signed by the President on Friday.
What’s inside the Act?
The CARES Act has several provisions that may be critical for nonprofits to sustain through the State and federal program closures. Many nonprofit organization are affiliated with for profit entities so I have provided some general benefits as well as nonprofit specific information below.
Emergency Small Business Loans can provide funding of up to $10 million for eligible nonprofits and small businesses. This loan can be forgiven in whole or in part if specific requirements are met.
- Loan funds could be used to make payroll and associated costs, including health insurance premiums, facilities costs, and debt service.
- General Eligibility: organization must have existed as of March 1, 2020 and had paid employees.
- Nonprofit Eligibility: Available for charitable nonprofits with 500 or fewer employees (full time and part time employees).
- Loan Forgiveness: Employers that maintain employment between February 15 and June 30 would be eligible to have their loans forgiven, essentially turning the loan into a general operating grant.
Economic Injury Disaster Loans (EIDL): Eliminates creditworthiness requirements and appropriates an additional $10 billion to the EIDL program so that eligible nonprofits and other applicants can get checks for $10,000 within three days.
Self-Funded Nonprofits and Unemployment: Only reimburses self-funded nonprofits for half of the costs of benefits provided to their laid-off employees.
Benefits for Donors: Several benefits that organizations may want to utilize to increase donor support:
- New above-the-line deduction (universal or non-itemizer deduction that applies to all taxpayers) for contributions made in 2020 for total charitable contributions of up to $300.
- For donors that itemize the existing cap on annual contributions of 60 percent of adjusted gross income has been raised to 100 percent. For corporations, the annual limit of 10 percent has been increased to 25 percent. Food donations from corporations would be available to 25 percent, up from the current 15 percent cap.
Employee Retention Payroll Tax Credit: Creates a refundable payroll tax credit of up to $5,000 for each employee on the payroll when the conditions noted below are met. Employers receiving emergency SBA 7(a) loans would not be eligible for these credits.
- The entity had to be an ongoing concern at the beginning of 2020 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 updated March 26, 2020 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 the decline in revenues (i.e. Contributions, Grants, Program Fees, etc.).
In addition to the above assistance, many community and corporate foundations have made special emergency grant funds available. We are constantly monitoring the changing legislation and funding available and will provide an update as they are issued.
Stay healthy, stay safe and keep your distance but stay socially connected to your friends, family and community. We will get through this together.
Visit our Coronavirus Resource Center for more information.