CARES Act: Nonprofit ReliefApril 13, 2020
By Zachary Tashman
As the world faces one of its most destabilizing public health storms, it is essential that we come together to support human service organizations that are dedicated to constructing firm foundations of collective well-being. The human service sector plays a critical role strengthening public health during this immediate crisis by providing assistance such as nutrition support, childcare, health services, and housing aid. When this immediate public health crisis abates, human service organizations will be a crucial component in rebuilding social and financial well-being that the pandemic will have eroded. Our ability to weather this storm hinges on ensuring that human services have the resources now to function effectively in an ever-changing environment and to plan and prepare for the rebuilding process that will follow. This article summarizes the major provisions in the Coronavirus Aid, Relief and Economic Security (CARES) Act (H.R. 748) that provide assistance to nonprofit organizations, allowing them to stay afloat during this tumultuous period. It also provides suggestions for future legislation needed to strengthen nonprofit organizations — in particular the human services sector.
Paycheck Protection Program (Emergency SBA 7(a) Loans)
This newly created $349 billion loan program is available for nonprofits with 500 or fewer employees to obtain up to 2.5 times monthly payroll, with the total amount capped at $10 million. The loans can be used to pay for the following organizational expenses: salaries (maximum of $100,000 per employee), health benefits, interest on a mortgage, rent, and utilities. Nonprofits can apply for these loans at most FDIC banks or credit unions now through June 30. A nonprofit can become eligible for loan forgiveness under this program if they retain the same number of employees by June 30 as prior to the pandemic, and the wages of every employee are not reduced beyond 25 percent from the prior year. No more than 25 percent of the loan forgiveness amount may be attributable to non payroll costs. Any loans not forgiven at the end of one year are carried forward up to 10 years at a maximum of 4 percent interest.
Expanded Economic Injury Disaster Loan (EIDL) Program & Emergency Grants
Traditionally the EIDL program distributes low-interest loans provided through the Small Business Administration (SBA) to help businesses and homeowners recover from declared disasters. The CARES Act provides the EIDL program an additional $562 million, while also waiving certain creditworthiness requirements and creating a new grant program. Nonprofits with 500 or fewer employees are eligible for the normal EID loans of up to $2 million, based on an applicant’s actual economic injury as determined by the SBA, at an interest rate of 2.75 percent. The provision also makes available an additional $10 billion for advance payments of up to $10,000 to be paid within three days, which nonprofits can immediately apply for. This program is meant to get money as fast as possible into the hands of nonprofits while they wait for approval on larger loans. This second category of advance loans does not need to be paid back (effectively making them grants) and can be used by organizations to cover payroll and some operating expenses.
Mid-Sized Business Loan Program
This loan program can be used by nonprofits with between 500 and 10,000 employees, as one component of the larger $500 billion Stabilization Fund in the CARES Act. Organizations that apply for these loans must make “good faith certifications” that show they require the loans and will make certain financial decisions upon receiving the loans, such as capping CEO pay (most of which are not applicable to nonprofits). While it is uncertain how many of these requirements will be interpreted or enforced, the most applicable and straightforward of these rules is that loan recipients must retain a minimum of 90 percent of their workforce, with full compensation and benefits, through September 2020. These loans are not eligible for forgiveness, but interest on these loans is capped at 2 percent with no principle or interest paid for the first 6 months. Currently, there are no guidelines as to how much of the Stabilization Fund will be allocated for the Mid-Sized Loan program and what the maximum loan amount an individual nonprofit can receive will be.
Employee Retention Tax Credit
Available through the end of 2020, the Employee Retention Tax Credit is designed to encourage employers to keep workers on their payroll. Qualifying employers can receive a refundable tax credit for 50 percent of a retained employee’s wages and health benefits (maximum credit of $5,000 per employee). For employers with 100 or more full-time employees, this credit is only available for wages paid to employees when they are not providing services due to a government-ordered shutdown or 50 percent decline in gross receipts. For employers with 100 or fewer employees, employers can use the credit regardless of whether the employee is providing services. Nonprofits receive this credit by reducing their required deposits of payroll taxes withheld from employees’ wages or submitting Form 7200 if their tax deposits are not sufficient to cover the credit. Crucially, organizations that take the retention tax credits are not eligible to participate in the Paycheck Protection Program and vice versa.
Charitable Giving Provisions
The CARES Act created two new charitable giving incentives that expire at the end of 2020. The first provision allows individuals to take an above the line deduction (before calculation of Adjusted Gross Income, or universal deduction) of up to $300 of cash contributions to most charities. The second provision suspends the 60 percent limitation on deductions for contributions to charities for individuals who itemize. For corporations, the current 10 percent deductible limitation on charitable contributions and 15 percent for food contributions are raised to 25 percent.
Additional Nonprofit Benefit Provisions
Temporary Financing of Short-Time Compensation Payments:
- Provides funding to states that have (or wish to establish) short-time compensation programs. These state run “work-sharing” programs allow employers to reduce the hours of certain employees instead of layoffs, with the affected workers receiving partial UI benefits to supplement their lost wages.
Employer Payments of Student Loans:
- Allows employers to provide a student loan repayment benefit to employees on a tax-free basis, up to $5,250 before the end of 2020. This amount would be excluded from the employee’s income and can also include payments under employers’ existing tuition assistance programs.
Deferral of Payroll Taxes:
- Allows employers to defer the payment of the employer share (6.2%) of Social Security taxes through December 2020. The deferred taxes are required to be paid over the following two years, with half of the amount paid by the end of 2021 and the other half by the end of 2022. There is no limit on the number of employees to take the deferral.
The National Assembly applauds the work Congress has done to include the nonprofit community in many of the key CARES Act programs. However, additional resources are needed to ensure that human service organizations are able to weather this storm and play a role in the rebuilding process in the months and years to come. NHSA supports the recommendations developed by the National Council of Nonprofits as provisions that Congress should include in any “phase four” Coronavirus package.
- Expand Nonprofit Access to Credit by designating funding exclusively for nonprofits within the two principal loan programs established in the CARES Act to ensure that the organizations dedicated to addressing immediate pandemic-related problems are included in relief efforts and not excluded or pushed to the back of the line. The following additional improvements are needed to expedite relief:
- Provide incentives to private lenders to prioritize processing of applications of small nonprofits and expand the eligibility for nonprofits to participate in the Paycheck Protection Program by modifying the current 500-employee cap or by other means.
- Adjust the CARES Act Section 4003(c)(3)(D) to implement a loan forgiveness program to support nonprofit employers with between 500 and 10,000 employees. The legislation should direct the Treasury Department to have this program operational no later than 15 days after enactment.
- Strengthen Charitable Giving Incentives to encourage all Americans to help their communities through charitable donations during these challenging times. The following modifications will generate immediate results:
- Encourage donations to the work of charitable organizations in their communities today by enabling taxpayers making donations on and after March 13 (the date of the national emergency declaration) and before July 16 to claim the deductions on their 2019 tax filings. This retroactive application should apply to itemized and above-the-line deductions during this critical period.
- Improve the above-the-line deduction in the CARES Act by increasing the $300 per person cap and extending the effective date of the incentive.
- Increase Emergency Funding by appropriating funds for targeted state formula grants and programs that can provide a rapid infusion of cash to nonprofit organizations that are partnering with state and local governments to protect vulnerable families and responders. Charitable nonprofits are on the front lines of providing relief, support, and care now, while the pandemic rages, and going forward as America will struggle to recover. Organizations need the resources now to provide vital services essential to individual and community well-being.