The $2 trillion coronavirus stimulus package, called the CARES Act, was signed into law on Friday afternoon… but what does that mean for nonprofits and donors? Here are some of the highlights:
For organizations with 500 or fewer employees
501(c)(3) and 501(c)(19) organizations with fewer than 500 employees (includes full-time and part-time) can gain access to $350 billion in loans through the Small Business Administration’s program called the Paycheck Protection Program.
It’s important to note that these loans can be forgiven if the nonprofit keeps staff on the payroll between March 1 and June 30. The amount of loan forgiveness may be reduced if the organization reduces the number of employees compared to the prior year, or if the employer reduces the pay of any employee by more than 25% as of the last calendar quarter. Organizations must apply for loan forgiveness to their lenders by submitting required documentation and will receive a decision within 60 days.
These loans can be up to $10 million, with the possibility of an expedited loan of up to $1 million, and can be used for payroll (including associated costs like health insurance premiums), facilities costs, and debt service. The loans can not be used for compensation of individual employees, independent contractors, or sole proprietors in excess of an annual salary of $100,000; compensation of employees with a principal place of residence outside of the United States; or leave wages already covered by the Families First Coronavirus Response Act.
Payments of principal, interest, and fees will be deferred for at least 6 months, but not more than 1 year, and interest rates are capped at 4%. The SBA will not collect any yearly or guarantee fees for the loan, and all prepayment penalties are waived.
For organizations with between 500 and 10,000 employees
There are funds available for “mid-size” organizations, defined as having between 500 and 10,000 employees. Funds are offered through a new Industry Stabilization Fund. Unlike the emergency SBA program, forgiveness is not provided.
Larger organizations are subject to additional loan criteria and obligations. The funds received must be used to retain at least 90 percent of the recipient’s workforce, with full compensation and benefits, through September 30, 2020. The recipient will not outsource or offshore jobs for the term of the loan plus an additional two years. The recipient will not abrogate existing collective bargaining agreements for the term of the loan, plus an additional two years. The recipient must remain neutral in any union organizing effort for the term of the loan.
Fully-refundable tax credits are provided for nonprofits, including foundations, if the organization is subject to a shut-down order or has lost 50% of revenue compared with last year. They can receive up to a $5,000 per employee tax credit. The tax credits could be applied against payroll taxes, so it’s an immediate benefit.
NOTE: Employers CANNOT take both the tax credit and SBA loans.
Benefits for donors and businesses
For folks filing as non-itemizers, there is a $300 above-the-line charitable deduction for cash donations made in 2020. This means that if you’re taking the standard deduction and you gave $300 to charity, you’ll get the $300 break on top of the standard deduction. This excludes gifts into donor-advised funds and 509(a)(3) supporting organizations. While the summary of the bill said that this only applied to 2020, the actual text of the bill that was signed into law states that it applies to tax years beginning in 2020. This is a good start towards the higher or no-cap deduction nonprofits have been seeking for years.
The CARES Act temporarily suspends adjusted gross income (AGI) limits for charitable deductions for cash gifts made by individuals and businesses. This also excludes gifts to donor-advised funds and 509(a)(3) supporting organizations. For individuals, the adjusted gross income limitation is suspended for 2020. For corporations, the 10% limitation was increased to 25% of taxable income.
There are additional provisions that could benefit organizations, such as:
- Provides $150 billion to states, territories, and tribal governments to use for expenditures incurred due to the pandemic. Some of these could be grants or direct spending through grantees providing relief services.
- Provides $100 billion in grants to health care providers to help fight the coronavirus. This could go to grantees like heath care centers who are responding to the virus.
- Provides $30 billion in emergency education funding for colleges and universities, states, and school districts. This could go to grantees in the education space.
- Provides $45 billion to FEMA’s response and recovery activities, with $400 million for grants that can be disbursed for firefighters, emergency managers, and providers of emergency food and shelter. This could help emergency aid grantees, like the American Red Cross, respond to the crisis in a timely manner.