The Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Family First Coronavirus Response Act (FFCRA) contain provisions to help employers maintain their workforces. Notably, the relief available to employers under both Acts focuses on payroll and extends to certain nonprofit organizations. Below is a description of the relief available to nonprofit organizations under the CARES Act and FFCRA.
Paycheck Protection Program
Under the CARES Act, the federal government created the Paycheck Protection Program (PPP) to assist small businesses, including nonprofits, in paying their employees for up to eight weeks. Eligible nonprofit employers can apply for a PPP loan through an SBA lender or through participating federally insured depository institutions, federally insured credit unions or Farm Credit Systems.
Eligibility. Generally, an employer is an eligible small business if it has 500 or fewer employees. Nonprofits are eligible only if they are an organization exempt from tax under Section 501(c)(3) or Section 501(c)(19) of the Internal Revenue Code. Section 501(c)(3) organizations generally include those organized for charitable, educational, scientific, religious or literary purposes, or testing for public safety, fostering amateur sports competitions, or prevention of cruelty to animals or children. A 501(c)(19) organization is organized for past or present members of the Armed Forces.
Loan Terms. The amount of the loan is limited to 2.5 times the employer’s average monthly payroll costs for the 12 months preceding loan origination. The loan carries a one percent interest rate, payments are deferred for six months, and personal guarantees and/or collateral are not required. Loan funds may only be used for payroll, benefits, rent, utilities and interest on mortgages. The loans are forgivable only if the employer uses the funds for the foregoing costs and at least 75 percent of those costs are for payroll. Additionally, the employer must quickly rehire or retain employees and maintain salary levels for eight weeks after origination of the loan.
For more information about PPP Loans, please refer to this publication.
Emergency Economic Injury Disaster Loans
The CARES Act bolsters the Emergency Economic Injury Disaster (EIDL) Loans available to nonprofits through the Small Business Administration (SBA). Nonprofits can apply for EIDL loans on the SBA website through December 31, 2020.
Eligibility. Nonprofit employers are eligible if they have 500 or fewer employees and were operating as of January 31, 2020. Only private nonprofit organizations or 501(c)(19) organizations are eligible for an EIDL loan.
Loan Terms. Eligible nonprofits may apply for a normal EIDL loan and an emergency advance loan.
- A normal EIDL loan is available in amounts up to $2 million. The interest rate for nonprofits is 2.75 percent and personal guarantees are waived up to $200,000. The normal EIDL loans are not eligible for forgiveness.
- An emergency advance loan is available for amounts of $10,000, payable within three days. The emergency advance loan is treated as a grant and will be forgiven.
Mid-Size Business Loan Program
The CARES Act authorizes a direct lending program to mid-sized businesses, including nonprofits.
Eligibility. Nonprofits with 500 to 10,000 employees may be eligible for a mid-sized business loan. To be eligible, the nonprofit must certify that (i) the loan is necessary; (ii) it will maintain 90 percent of its workforce at full compensation until September 30,2020; and (iii) it intends to rehire 90 percent of its staff (as of February 1, 2020) within four months after the end of the COVID-19 emergency.
Loan Terms. Mid-size nonprofits that qualify are not eligible for loan forgiveness; however, interest rates are capped at two percent and no interest will accrue for the first six months. Additionally, repayments do not begin for six months.
Payroll Tax Credits
A nonprofit employer may be eligible for payroll tax credits under the CARES Act and the FFCRA. Specifically, a nonprofit may be eligible for family and sick leave credits under the FFCRA and an employee retention tax credit under the CARES Act.
- Under the FFCRA, the nonprofit employer must have fewer than 500 employees and be required to provide qualified sick and family leave wages under the FFCRA.
- Under the CARES Act, the nonprofit must have fully or partially suspended business operations due to COVID-19 or must have a significant decline in gross receipts compared with 2019. Employers will be eligible for the period beginning in the quarter when their gross receipts are less than 50 percent of their 2019 gross receipts for that quarter and ending the quarter after their gross receipts exceed 80 percent of gross receipts for the same quarter in 2019.
Terms of Credit.
- Under the FFCRA, an eligible nonprofit may offset costs associated with required paid family and sick leave dollar-for-dollar with refundable tax credits against employment tax. The refundable tax credits are on the employer portion of Social Security tax. The credit is available for wages paid from April 1, 2020, to December 31, 2020
- The CARES Act allows eligible nonprofits a refundable payroll tax credit equal to 50 percent of the wages paid to an employee, in amounts up to $5,000 per employee per quarter. The refundable tax credits are on the employer portion of Social Security tax. The credit is available for wages paid from March 13, 2020, through December 31, 2020.
For a description of limitations regarding the payroll tax credits and information on advance payment of the credits, please refer to the Miles & Stockbridge client alert. For more information regarding the employer retention credit available under the CARES Act, please refer to this publication.
Payroll Tax Deferral
The CARES Act provides for a deferral of the employer’s portion of Social Security tax for the period from March 27, 2020, through December 31, 2020. There are no eligibility requirements, and nonprofits are included as employers. For more information regarding the payroll tax deferral, please refer to this publication.
Emergency Unemployment Relief
The CARES Act authorizes unemployment reimbursement programs through the states that benefit governmental entities and certain nonprofit organizations.
Eligibility. Only 501(c)(3) organizations are eligible for emergency unemployment relief. Nonprofits must also self-fund unemployment benefits to qualify for relief.
Terms of Relief. Eligible nonprofits will receive reimbursement for 50 percent of costs for unemployment benefits paid to former employees between March 13, 2020, and December 31, 2020.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.