How the CARES Act Provides Relief for the Social Good Community and Businesses in the U.S. – Updated as of July 2, 2020
On May 15, the U.S. House of Representatives passed H.R. 6800, also known as the HEROES Act. As with most legislation, it is unlikely that this bill will become a law in its current form as passed by the House, however it begins a conversation among the House, Senate and Administration on the next phase of COVID-19 relief. Follow this link to a high-level overview on sgEngage.
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.
On March 27, the CARES Act was enacted in the United States. This is the third relief package passed by Congress and signed into law by the President to address the U.S. response to COVID-19. The CARES Act is the largest relief package in U.S. history and includes several provisions helpful to nonprofit organizations and businesses.
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
Temporary Universal Charitable Deduction for 2020 Tax Year
A temporary charitable deduction has been enacted for 2020. This deduction will allow taxpayers who do not currently itemize their deductions to claim a charitable deduction for cash donations up to $300 through December 31. The $300 cap applies to individuals and married couples equally, i.e., a married couple would not be able to take a $600 deduction. Donations to donor advised funds and supporting organizations are not eligible for this deduction.
Adjusted Gross Income Charitable Deduction Caps Suspended or Increased for 2020 Tax Year
The adjusted gross income (AGI) limits on charitable donations are suspended or increased for cash gifts made by individuals and corporations. 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 for the 2020 tax year. The AGI cap for corporations has been increased from 10% to 25% for corporate tax years ending in 2020. For food donations, the corporate cap has been increased from 15% to 25% for corporate tax years ending in 2020. 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
On Friday, April 24, the President signed legislation proving additional funding for both the Economic Injury Disaster Loan and Paycheck Protection Programs. The information found below includes the new funding totals.
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.
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.
Paycheck Protection Program Emergency 7(a) Relief Loans
The CARES Act provides for $659B for the Paycheck Protection Program (PPP). Small businesses, 501(c)(19) veteran organizations, and 501(c)(3) nonprofits, including religious 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.
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.
Lenders began accepting applications and processing loans on Friday, April 3, 2020. The application deadline has been extended to Saturday, August 8, 2020. The Department of Treasury has provided a borrower fact sheet and the SBA has posted the PPP loan application form. The SBA has also released a FAQ for faith-based organizations wishing to participate in EIDL and PPP, launched a PPP Find a Lender search function, and issued a PPP FAQ.
Borrowers can apply for up to $10M or 2.5X (250%) of their average monthly payroll, whichever is less. This loan is intended to cover twenty-four weeks of payroll expenses and for making payments toward debt obligations.This twenty-four-week period can be applied to any time frame between February 15, 2020, and December 31, 2020.
The PPP loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (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.
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.
Borrowers who received funding through PPP and now find that they might be unable to certify in good faith that the loan was necessary have until May 18 to return the funding. The SBA included guidance on how it plans to review borrowers’ certifications in its FAQ dated May 13, 2020. The SBA updates its FAQ and guidance regularly.
The SBA revised the PPP Loan Forgiveness Application and instructions. There are two loan forgiveness applications, a standard and EZ format. The SBA has posted a number of additional resources for PPP under Lender Forms and Guidance.
Main Street Lending Program for Nonprofit Organizations
The Federal Reserve is developing criteria to expand the Main Street Lending Program to nonprofit organizations. As proposed by the Federal Reserve:
- The minimum loan size would be $250,000 with a maximum of $300 million;
- Principal payments would be fully deferred for the first two years of the loan and interest payments would be deferred for one year;
- Eligible organizations must be either a 501(c)3 or 501(c)19 and have a minimum of 50 and maximum of 15,000 employees;
- Organizations would need to meet certain financial thresholds, have been in existence for at least five years, and have an endowment no greater than $3 billion.
The National Council of Nonprofits has created a side by side view of loans available to borrowers through the CARES Act.
Additional Assistance Available for Nonprofit Organizations and Businesses
Deferral of Employer Payroll Taxes
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.
Employee Retention Credit
The CARES Act also provides a refundable payroll tax credit for 50% of wages paid 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 50% when compared to the same quarter in the prior year.
The total wages attributed to an employee is capped at $10,000, including health benefits, resulting in a maximum credit of $5,000 per employee. 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, and before January 1, 2021. Please Note: Entities receiving the Employee Retention Credit are not eligible for loan forgiveness for PPP loans or payroll tax deferral. 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.
- 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: