Nonprofit organizations, in addition to for profit organizations, can take advantage of the direct financial relief offered under the Coronavirus Aid, Relief, and Economic Security Act “CARES Act”.
What direct financial relief is available for nonprofit organizations?
Paycheck Protection Program Loans “PPP Loans” will be available directly through an SBA or Treasury approved bank or credit union for nonprofit organizations tax-exempt under Section 501(c)(3) or veterans’ organizations tax-exempt under Section 501(c)(19) of the US Internal Revenue Code. Nonprofits can use the proceeds of PPP Loans to pay staff, mortgage interest, rent and utilities. Full loan forgiveness may be provided under certain circumstances for the first eight weeks of the loan for nonprofit employers who retain their employees. Similar to for profit organizations, the portion of the PPP Loan not forgiven will have a term of 10 years and maximum rate of 4%. A sample PPP Loan application is now available on the SBA’s website and the program should be up and running by April 11.
Emergency Injury Disaster Loans “EIDL” are available for all nonprofit organizations, not just 501(c)(3) and 501(c)(19) organizations. Nonprofit organizations which apply for an EIDL can also take advantage of the $10,000 cash advance available within 3 days of filing the loan application. The cash advance can be used for sick leave, payroll, increased costs due to disrupted supply chain, mortgage and debt service. The $10,000 cash advance is treated as a grant and will be forgiven even if the nonprofit borrower is ultimately denied the EIDL. Nonprofits can apply for an EIDL today on the SBA website. 501(c)(3) and 501(c)(19) organizations may apply for an EIDL in addition to a PPP Loan, provided the funds are not used for the same purpose.
What indirect relief is available to nonprofit organizations?
The CARES Act facilitates charitable giving to 501(c)(3) organizations by creating a new universal (non-itemized) above-the-line deduction to individual taxpayers for total charitable contributions of up to $300. This incentive will apply to contributions made during 2020. The CARES Act will also lift the existing cap on annual contributions for individuals who itemize (now 100% instead of 60%) and for corporations (now 25% instead of 10%).
The CARES Act also creates an employee payroll tax credit of 50% of wages paid to employees of a nonprofit organization from March 13 to December 31, 2020, up to a maximum of $5,000 per employee (up to $10,000 of such employee’s wages). To take advantage of this credit the nonprofit’s activities must be suspended due to government actions related to COVID-19 or the nonprofit must experience a 50 percent decline in revenue during the first quarter of 2020 as compared to the first quarter of 2019. No “double dipping” allowed, and nonprofits who take advantage of a PPP Loan cannot also take the employee payroll tax credit.