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April 01, 2020

Forging a Path Forward: Impact of the CARES Act on Not-for-Profits

Tax Relief and Loan Opportunities for NFPs

by Maria M Sanjuro, Audit Partner & Long Island Office Managing Partner

The CARES Act and the Families First Coronavirus Response Act provide significant benefits and protections for Not-for-Profit organizations. The following provides an overview of the key aspects of each.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act

On March 27th, President Trump signed into law the CARES Act, an emergency relief bill aimed at providing much-needed relief to individuals and businesses in response to the novel coronavirus. Non-profit organizations also received vital support through the Act. Below are overviews of key provisions that are applicable to Not-for-Profit organizations.

SBA 7(a) CARES Act Loan aka the “Paycheck Protection Program” (PPP)

The definition of eligible businesses for the SBA 7(a) CARES Act loan program includes non-profit organizations. Generally, only IRC Section 501(c)(3) organizations are included, however veteran organizations (IRC Section 501(c)(19)) and tribal businesses are also eligible. Generally, this program is available to not-for-profit organizations with 500 or fewer employees. Organizations can borrow up to 2.5 times their monthly payroll expenses, with a cap at $10 million. Such funds can be used to cover: payroll costs, operating expenses, and rent/lease/mortgage obligations.

  • Organizations that do not enroll in this program may also qualify for an Employee Retention Tax Credit, whereby the CARES Act provides a payroll tax credit of up to $5,000 per employee, for Not-for-Profits adversely affected by COVID-19. This credit is available for wages paid or incurred from March 13, 2020 through December 31, 2020.
  • Organizations with greater than 500 employees that are not eligible for the Paycheck Protection Program loan, are eligible for funds through the Economic Stabilization Fund, where monies may be used to provide payroll and related benefits for employees. Monies provided through this fund are not eligible for the loan forgiveness provisions as outlined under the Paycheck Protection Program.

Emergency Economic Injury Disaster (EIDL) Grants

The CARES Act includes $10 billion for the federal Small Business Administration (SBA) to provide emergency grants until Dec. 31, 2020. Any not-for-profit organization under IRC Section 501(c) is eligible for this loan program and can seek immediate relief through a $10,000 emergency advance within three days after applying for the EIDL grant. If the entity can substantiate the funds through payroll and operating expenses, the applicant is not required to repay the $10,000 advance and as such, the advance is turned into a grant.

The CARES Act also includes tax provisions that may impact not-for-profits. including:

  • Employee retention credits
  • Payroll tax deferral

The CARES Act also lifts the limitations on charitable contributions deductible on future tax returns:

  1. Individuals: Charitable contributions 100% deductible (from 60%)
  2. Corporations: Limitation increased to 25% (from 10%)
  3. Donor-advised funds are not impacted through these provisions.

Unemployment Benefits

The CARES Act includes a specific section allowing not-for-profit organizations to be reimbursed for half of the costs incurred through the end of 2020 to pay unemployment benefits, including self-funded unemployment benefits.

Signed into law on March 18th, this relief bill mandates paid leave benefits for small business employees, generally employees of organizations with fewer than 500 employees, affected by COVID-19. It also establishes related payroll tax credits for employers.

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We understand that in this time of uncertainty you may have growing concerns for the financial health of yourselves and your organizations, employees and families. Please contact us if you have any additional questions, including assistance with applying for the benefits outlined above.

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COVID-19
CARES Act
Tax Planning
NFP
Nonprofit
Not-for-profit