Latest Update on the PPP:On April 24, 2020, President Trump signed a supplementary relief package to the original CARES Act that went into effect earlier in April. The original $350 billion to fund the Paycheck Protection Program (PPP) was used up by April 17, 2020 so this new funding bill provides another $310 billion for the PPP, with an added $10 billion set aside to cover administrative costs. There’s also $60 billion allocated for the Economic Injury Disaster Loans Program, which covers forgivable grants for small businesses. Check out our original posting below for more details on the CARES Act. +++
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) has now officially passed both the Senate and the House of Representatives and President Trump has signed it into law. With an estimated $2 trillion price tag, the CARES Act includes a few key elements that could provide relief to nonprofit organizations impacted by the economic downturn.
Charitable Deduction Change: The CARES Act provides incentives for individuals to make charitable contributions. The 2017 Tax Cuts and Jobs Act roughly doubled the standard deduction, dramatically reducing the number of individuals who could itemize their deductions and thus providing fewer tax incentives for individuals to make charitable donations. Now, the CARES Act allows non-itemizers to deduct up to $300 in cash giving for the 2020 tax year. Donations to donor advised fund accounts would not qualify for the non-itemizer deduction.
Additionally, for individual taxpayers that do itemize, cash contributions made during 2020 will not be subject to Adjusted Gross Income (AGI) limitations (as opposed to the 60 percent cap established by the Tax Cuts and Jobs Act). So the law lifts the cap on annual giving from 60 percent of adjusted gross income to 100 percent. Again, these changes would not apply to contributions to a supporting organization or a donor advised fund. It also increases the annual limit on corporate charitable deductions from 10 to 25 percent of taxable income.
So what does this mean? The hope is that it will impact both smaller annual giving as well as major giving. With the $300 deduction, hopefully it will encourage people to continue their annual gifts to organizations they care about. With the AGI cap going away for this year, this would potentially have more of an impact on major donors.
What to do next? Consider how you might share this information with your donors. If you have a spring appeal planned, think about how you might incorporate language about the $300 deduction. For major donors, as you’re having conversations with them and learning how they’re thinking about their giving, you could make sure they’re aware that the AGI cap has been lifted for 2020.
Small Business Administration (SBA) Loan Program Expansion: The CARES Act provides financial relief – in the form of low-interest (under 4 percent), federally-backed loans of up to $10 million – to eligible nonprofit organizations and small businesses, to help cover operational costs like payroll, rent, health benefits, insurance premiums, and utilities during the period of February 15, 2020 to June 30, 2020. To qualify, organizations must have fewer than 500 employees and borrowers must agree that funds will be used to retain workers and cover overhead expenses during the COVID-19 crisis.
There are few borrower requirements to obtain a loan under the new program. No collateral or personal guarantee is required and, in some instances, loan amounts can be forgiven in whole or in part. One of those requirements is that employers maintain employment levels between February 15, 2020 and June 30, 2020.
Payroll Tax Relief: Organizations that do not receive an emergency SBA loan are eligible for a refundable payroll tax credit of up to $5,000 for each employee. Like many of the CARES Act’s provisions, certain criteria must be met in order to receive the credit. For example, organizations must illustrate a 50 percent drop in revenue in the first quarter of 2020 compared to last year. The availability of the credit extends until the organization’s quarterly revenue exceeds 80 percent of the same quarter in 2019.
Unemployment Relief: As evidenced by last week’s surge in unemployment claims, we are beginning to see the true quantitative impact this shutdown is having on the American workforce. The 3.28 million new weekly claims easily surpassed the Great Recession peak of 665,000 in March 2009 as well as the all-time record of 695,000 in October 1982. In addition to the previously mentioned loan forgiveness provisions that incentivize nonprofit organizations to maintain their full workforce, the CARES Act provides robust and previously unprecedented coverage to unemployed Americans, should organizations have to lay off workers under financial constraints.
Traditionally, state-level unemployment benefits can cover anywhere between 20 to 50 percent of average weekly wages, resulting in payments of $200 to $550 per week depending on where you live. Under the CARES Act, jobless workers are poised to get an extra $600/week on top of their state benefits from the federal stimulus package for up to 4 months. Both the maximum amount and duration of state-level benefits will still vary depending on previous compensation and location. However, lawmakers want to add up to 13 weeks of extended benefits to state-level programs, which traditionally range from 12 to 28 weeks, to ensure state benefits extend to at least 6 months of coverage for jobless Americans. Per usual, eligibility is conditional to ability and availability to work, in addition to actively looking for work. Lastly, many states have what is called a “waiting week” between the time an individual files a jobless claim and when they begin receiving their benefits. Under the CARES Act, the federal government will cover the cost of that first week to ensure jobless workers have quicker access to cash.
This post is merely a brief summary of a very detailed piece of legislation, and we focused on just a few of the main parts that apply to nonprofit organizations. Much work needs to happen in the coming days to set up the process for applications, answer questions about the fine print, etc. In the meantime, to understand which of these provisions your organization may qualify for, consult with your legal and financial counsel.
And there may be more help coming. Speaker of the House Nancy Pelosi told CNN last week: “At the start of all this we had two bills, which were about emergencies … and the emergency isn’t over, but the focus was on those two bills. Now we’re mitigating for the damage of it all to the health and to the livelihood of the American people. That is in this bill. And then we will go forward for recovery. Emergency, mitigation, recovery. Don’t judge [this bill] for what it doesn’t because we have more bills to come.”