The President signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) on March 27. Below is our reaction to and summary of the legislation.
We expect the CARES Act will have many positive impacts on nonprofit organizations challenged by the COVID-19 crisis including the following:
- Access to small business loans for nonprofits with fewer than 500 employees. Loans can be forgiven if nonprofits can maintain their current staffing levels.
- Unemployment relief for many employees and nonprofit employers. This includes $600 per week over the next four months for people who lose jobs. Also, payment of 50% of unemployment claims for self-insured nonprofits.
- All taxpayers can deduct up to $300 of their charitable giving in 2020. This applies regardless of whether a taxpayer itemizes deductions or takes the standard deduction.
- Additional funding for federal programs that support the work of nonprofits and the people they serve (see funding increases below)
- Direct payments to households. Most households will receive $1,200 per adult and $500 per child later on this year.
Unfortunately, the bill does have some gaps that we'd like to see Congress to address in future legislation addressing COVID-19:
- Self-insured nonprofits will still have to reimburse states for 50% of unemployment claims. With many nonprofits impacted by reduced earned income and donations due to COVID-19 and a likely economic contraction, paying 50% of claims would be a hardship Congress could do more to help more nonprofits with these costs.
- Limiting the above-the-line charitable deduction to $300 does not provide a strong incentive for larger donations. Congress should model this policy after pending legislation that allows non-itemizers to deduct up to $4,000 per year in 2020.
How the bill affects nonprofits
Paycheck Protection Program (PPP) Loans [Emergency SBA 7(a) loans]
- Available from SBA qualified lenders at a 1.0% annual interest rate
- Available to eligible nonprofits and small businesses with 500 or fewer employees
- Covers 2.5 months of the annual average cost, up to $10 million, for salaries and payroll, group health benefits, mortgage/rent payments, utilities, and existing debt interest
- No payments for the first 6-12 months with a two year-term for longer-term loans
- The loan covers the period between Feb. 15 and June 30 of 2020
- Forgiven if employers retain or rehire employees between March 1 and June 30.
- Forgiveness is reduced for employers that subsequently layoff employees or reduce pay
- Does not require a test of creditworthiness, collateral, or personal guarantees
- Since passage of the CARES Act, Congress passed bills to increase the amount of funding provided through the PPP, expand the period of time covered by the loan, and require that borrowers spend at least 60% of payroll. The latter addresses a Treasury rule that required at least 75% of loan funds to be spent on payroll.
- In May, we submitted comments on SBA's PPP requesting elimination of the 75/25 ratio, improvements to loan terms, and other clarifications.
Economic Injury Disaster Loans (EIDL)
- Appropriates $10 billion more to the EIDL program
- Provides up to $2 million per borrower and eliminates creditworthiness requirements
- Applies to payroll and benefits, debts, payable, and other payments that cannot be made due to a disaster
- 3.75% APR in general/2.75% APR for nonprofits up to a 30 year term
- Eligible nonprofits and other applicants can get advances for $10,000 within three days of applying
- Loan is not forgivable
- Amount received in EIDL can be refinanced into a PPP loan but EIDL must be subtracted from forgiveness in PPP under any circumstance
Mid-Size Loan Fund
- $425 billion loan and loan guarantee program to keep industries solvent through the crisis
- Does not include businesses that have received other relief from this act
- Applies to "mid-sized businesses" with 500 to 10,000 employees, including nonprofits
- Businesses arre eligible for loans at an interest rate no higher than two percent with no interest or repayments for the first six months
- Nonprofits accepting these loans must retain at least 90 percent of staff at full compensation
Updates and Resources
- Colorado Nonprofit Association sent a letter to the Federal Reserve asking for either the Main Street loan program to include nonprofits or for establishment of a separate program for nonprofits
- In June of 2020, the Federal Reserve proposed rules for a Main Street loan program for nonprofits. We submitted comments asking for changes to the proposal.
- In July, the Federal Reserve issued updated guidance on the Main Sreet Loan Program. The proposal unfortunately does not provide loan forgiveness or fundamentally change rules that make it difficult for nonprofits primarily funded by donations to receive assistance.
More information on CARES Act loans
- COVID-19 Small Business Guidance and Loan Programs (SBA)
- Treasury Department information on loan programs for borrowers and lenders
- Small Business Development Center representatives can answer questions for nonprofits through the COVID Economic Hotline at (303) 860-5881.
- Visit our FAQs for more information on applying for federal CARES Act loans
- Visit our Loan Application page to request application assistance
- Loan program information from National Council of Nonprofits
Employee Retention Payroll Tax Credit
- Refundable payroll tax credit up to $5,000 for each employee on the payroll
- Available if entity had at least a 50 percent drop in revenue in the first quarter of 2020 compared to 2019
- Available each quarter until the organization’s revenue exceeds 80 percent in 2020 of the same quarter in 2019
- All operations must be taken into account when determining the decline in revenues
- Employers receiving emergency SBA 7(a) loans would not be eligible for these credits
- IRS employee retention credit FAQs
Charitable Giving Incentive
- Non-itemizer deduction for total charitable contributions of up to $300 made in 2020 and claimed on tax forms next year
- Lifts the existing 60% income cap on annual contributions for those who itemize in 2020
- Raises the annual limit from 10 percent to 25 percent for corporate donations
- Food donations from corporations would be available to 25 percent, up from the current 15 percent cap
Self-Funded Nonprofits and Unemployment
- Reimburses self-funded nonprofits for 50% of the costs of benefits provided to laid-off employees
Expanded Unemployment Insurance
- Available for workers who are furloughed, gig workers, and freelancers
- Increases payments by $600 per week for four months on top of state unemployment payments
Amendments to the New Paid Leave Mandates:
- Lowers the amounts employers must pay for paid sick and family leave to the amounts covered by the refundable payroll tax credit under the Families First Act
- Up to $511 per day for employee sick leave or $200 per day for family leave
Direct Payments to Households
- Up to $1,200 for adults and $500 per child ($3,400 for a family of four) to be sent out in a matter of weeks
- Payments phase out between $75,000 and $99,000 for individual filers
- $150 billion for a state, tribal, and local Coronavirus Relief fund
- $130 billion for hospitals
- $30 billion for education
- $25 billion for transit systems
- $15.5 billion for the Supplemental Nutrition Assistance Program
- $8.8 billion for child nutrition programs
- $5 billion for the Child Care Development Block Grant
- $4 billion for Emergency Solutions Grants to help people experiencing homelessness or at risk of losing their homes
- $3 billion in rental assistance for low-income families
- $1 billion for the Community Services Block Grant
- $750 million for Head Start
- $450 million for The Emergency Food Assistance Program (TEFPAP) for nonprofit food banks
- $400 million in election grants to support vote by mail, early voting, and online voter registration programs
- $75 million for the National Endowment for the Arts and National Endowment for the Humanities, which support many arts and cultural nonprofits
- $50 million for legal services