How the CARES Act and December’s Stimulus Package Provide Relief for the Social Good Community and Businesses in the U.S. – Updated as of January 11, 2021
On December 21, 2020, the U.S. House of Representations and Senate passed a $900B COVID-19 relief package as part of a $1.4T appropriations bill, which will fund the government through September 30, 2021. The President is expected to sign the legislation. Like the CARES Act, this package provides program and funding assistance helpful to nonprofit and other social good organizations.
Much of what is included in the December package builds on the CARES Act which was enacted on March 27, 2020.
As this and other legislation related to COVID-19 relief for the social good community evolves, we will do our best to continue bringing you valuable updates.
Below you will find information on the assistance available for social good organizations and small-to-mid-sized businesses as employers. This information was compiled from various sources, including FAQs drafted by Congressional staff, Small Business Administration, Department of Treasury, Internal Revenue Service, Independent Sector, and National Council of Nonprofits. Independent Sector and National Council of Nonprofits are tracking developments around COVID-19 relief and providing updates. You can check out their websites, subscribe to their updates, and involve yourself in the conversation to stay up to date.
Blackbaud provides this information as a service to its customers for educational purposes only. It does not constitute legal advice and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. Readers should seek such advice from their own professional advisers.
COVID-19 CARES Act
Incentives for Charitable Giving by Individuals and Corporations
Universal Charitable Deduction extended through December 31, 2021
The universal charitable deduction has been extended through December 31, 2021. This deduction allows taxpayers who do not currently itemize their deductions to claim a charitable deduction for cash donations up to $300. In 2020, the $300 cap applied to individuals and married couples equally, i.e., a married couple would not be able to take a $600 deduction. However, for 2021 the cap for those filing jointly has been increased to $600. Donations to donor advised funds and supporting organizations are not eligible for this deduction.
Adjusted Gross Income Charitable Deduction Caps Suspended or Increased through December 31, 2021
The adjusted gross income (AGI) limits on charitable donations are suspended or increased for cash gifts made by individuals and corporations through December 31, 2021. The 50% AGI cap for individual taxpayers who itemize has been suspended. Taxpayers who itemize are eligible to take charitable deductions for donations up to 100% of their AGI. The AGI cap for corporations has been increased from 10% to 25% for corporate tax years. Donations to private foundations and donor advised funds are not eligible for the increase or suspension of AGI limits.
Emergency Loans for Nonprofit Organizations and Small and Midsized Businesses
Economic Injury Disaster Loan 7(b) Program
The Small Business Administration (SBA) is providing $70B in low-interest disaster loans to assist small businesses and nonprofit organizations with 500 employees or less through its Economic Injury Disaster Loan (EIDL) program. Per the EIDL application, nonprofit organizations seem to be more broadly defined than for the Paycheck Protection Program (PPP) outlined below.
The EIDL program provides nonprofit organizations and small businesses, who were in operation before January 31, 2020, with working capital loans of up to $2M. However, we learned on May 7 that the SBA is capping loans for this program at $150K and only accepting applications for agricultural businesses at this time. Interest rates for small businesses are capped at 3.75% and 2.75% for nonprofit organizations. Those interested in applying for this loan program can do so directly through the SBA. Funds can be used for payroll costs, materials, rent, account payables, mortgage or other debt payments. Applications for this program will be accepted through December 31, 2020.
$20B was appropriated for advance EIDL grants. The CARES Act expanded the EIDL program to include an advance of $10,000 against the loan within three days of applying. If the loan application is eventually denied, the $10,000 grant does not have to be repaid. It also waives the personal guarantee up to $200,000 and the requirement to demonstrate the inability to obtain credit elsewhere.
Small businesses and nonprofits in low-income communities are eligible to receive $10,000 grants. Any entities in low-income communities that received an EIDL Advance grant previously and did not receive the full amount in a previous round are eligible to receive the full $10,000 if their grant award was lower. According to the SBA’s website, advance grants are no longer available.
Paycheck Protection Program Emergency 7(a) Relief Loans
Through the December legislation, an additional $284B has been appropriated for the Paycheck Protection Program, which resumed on January 11, 2021, and has been extended through March 31, 2021. PPP, originally enacted through The CARES Act, provides forgivable loans for nonprofit organizations and other entities. Small businesses, 501(c)(19) veteran organizations, and 501(c)(3) nonprofits, including religious organizations, and 501(c)6 organizations, to include Chambers of Commerce and tourism organizations, with 500 or fewer employees are eligible for this program. Other criteria include having been in existence on or before February 15, 2020, and having paid employees.
The most recent legislation also –
- Sets aside $15B specifically for “live venues”, include cultural institutions
- Sets aside funding specifically for entities with 10 or fewer employees and those located in distressed areas
Some entities will also be eligible for a second forgivable loan. Eligibility requirements for these second loans include:
- Having 300 or fewer employees
- Can demonstrate a loss of 25% in gross receipts in any quarter in 2020 when compared to the same quarter in 2019
Borrowers are to work with financial institutions with whom they have relationships to access this loan program. Along with existing SBA 7(a) lenders, federally insured credit unions, federally insured depository institutions, and Farm Credit System institutions are eligible to participate in PPP. The SBA is providing incentives to commercial lenders to participate in this program by guaranteeing these loans at 100%. Please contact your local lender to see if it is participating in this program.
First time borrowers can apply for up to $10M or 2.5X (250%) of their average monthly payroll, whichever is less. Second time borrowers are capped at $2M.
The PPP loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, utilities, and personal protective equipment (PPE) expenses (due to likely high subscription, at least 60% of the forgiven amount must have been used for payroll). Payroll costs include – employee salaries, hourly wages, paid sick or medical leave, and group health insurance premiums. Loan forgiveness will not be applied to compensation paid to any employee in excess of an annual salary of $100,000. Although borrowers can use this loan for other business expenses, the portion of the loan not used for approved expenses will not be forgiven.
Borrowers will work with their lenders to certify how the loan was used and determine the amount of the loan to be forgiven. Borrowers will not have to pay interest on any portion of the loan that is forgiven. Any portion of the loan that is not forgiven is subject to the loan terms agreed to by the borrower and the lender. The Paycheck Protection Flexibility Act extended the loan terms to a minimum of 5 years. Loan forgiveness will also be based on borrowers maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages, decrease.
The SBA has revised the PPP Loan Forgiveness Application and instructions. There are three loan forgiveness applications, a standard, an EZ format, and Spanish language version. The SBA has posted a number of additional resources for PPP under Lender Forms and Guidance. It has also posted an FAQ covering PPP loan forgiveness. Loan forgiveness for those entities receiving $150,000 or less will be simplified through the December 2020 legislation.
No collateral or personal guarantees are required. Neither the government nor lenders will charge any fees. Funding through this program will be awarded on a first come first served basis.
The SBA has issued more detailed guidance with regards to the relationship between EIDL and PPP loans. If borrowers received an EIDL related to COVID-19 between January 31, 2020, and April 3, 2020, the date Paycheck Protection Program loans became available, borrowers must refinance the EIDL into the PPP loan if the borrower used the EIDL for payroll expenses. A borrower may also refinance an EIDL into a PPP loan if the borrower used the funds for expenses other than payroll. Again, the receipt of the EIDL must have been between January 31, 2020 and April 3, 2020. In this instance, borrowers are not required to refinance the EIDL. Remaining portions of the EIDL, for purposes other than those laid out in loan PPP forgiveness terms for a PPP loan, would remain a loan. If borrowers took advantage of an emergency EIDL grant award of up to $10,000, that amount would be subtracted from the amount forgiven under the PPP. Please note: If a borrower received an EIDL loan and did not use it for payroll costs, the borrower may be able to take out an EIDL loan and a PPP loan. Borrowers are not able to refinance an EIDL into a PPP loan if the EIDL was received before January 31, 2020 or after April 3, 2020.
The SBA updates its FAQ and guidance regularly.
Additional Assistance Available for Nonprofit Organizations and Businesses
Employee Retention Tax Credit
The Employee Retention Tax Credit, created through the CARES Act has been extended and expanded. The Employee Retention Tax Credit now provides a refundable payroll tax credit for 70% of wages paid, increased from 50%, by employers to employees during the COVID-19 crisis. The credit is available to employers (1) that were fully or partially suspended, due to a COVID-19-related shut-down order, or (2) where gross receipts declined by more than 20%, decreased from 50%, when compared to the same quarter in the prior year.
The total wages attributed to an employee have increased from $10,000 per year to $10,000 per quarter, including health benefits. Eligible wages include -
For employers with greater than 100 full-time employees, wages paid to employees when they are not providing services due to COVID-19
For employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order
This retention credit applies only to wages paid after March 12, 2020, through July 1, 2021. Please Note: Entities receiving the Employee Retention Credit are now eligible for loan forgiveness for PPP loans, providing that wages were not paid with the forgiven PPP loan, or payroll tax deferral. This change is retroactive to March 27, 2020. For additional information, please refer to this FAQ provided by the IRS. The IRS has published a number of COVID-19 related resources along with additional guidance on the Employee Retention Credit.
Deferral of Employer Payroll Taxes – Ended on December 31, 2020
All employers can delay the payment of employer Social Security taxes, 6.2% on employee wages, for wages accrued between March 27, 2020, and December 31, 2020. 50% of employer payroll taxes are due by December 31, 2021. The remaining 50% of the employer’s portion of the 2020 payroll tax is due December 31, 2022. Please note: Entities receiving loan forgiveness for PPP loans are now eligible to participate in the deferral of employee payroll taxes due to the passage of the Paycheck Protection Flexibility Act. Entities participating in Employee Retention Credits are still not eligible for payroll tax deferral. The IRS has released additional guidance through this FAQ.
- Additional U.S. Resources
Although the above information is focused on relief through the CARES Act for nonprofit organizations and businesses in the United States, governments around the world are also providing relief to the social good sector. For more information on specific regions, please visit: