Nonprofits Eligible for CARES Act Assistance

Although small businesses have been the focus of coronavirus-related financial assistance, nonprofits have been similarly struggling. They, too, must cover payroll expenses, rent and financing obligations. Rightly, the Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law by President Trump on March 27, 2020, also applies to them.

The following describes the benefits available to nonprofits to help them weather the financial storm.

SBA Financing

The CARES Act amends the Small Business Act (SBA) to provide additional financial relief options, including the Paycheck Protection Program (PPP), Economic Injury Disaster Loans (EIDL) and Emergency Economic Injury Grants (EEIG). The SBA issued regulations implementing and providing guidance under certain provisions of the CARES Act, clarifying that faith-based organizations and tax-exempt nonprofit organizations under Sections 501(c)(3) and 501(c)(19) of the Internal Revenue Code are eligible, along with small businesses, to participate in the PPP and EIDL financing programs without regard to whether such entities provide secular social services. However, these nonprofit entities are also subject to the same limitations as the small businesses applying for financial assistance under these SBA programs.

The PPP gives nonprofits relief from payroll expenses from February 15, 2020 through June 30, 2020, and loan forgiveness, as more fully described in this article. The CARES Act also includes $10 billion for the SBA to provide emergency grants until December 31, 2020, under the EIDL. Specifically, nonprofits seeking immediate relief can receive an EEIG $10,000 emergency grant within three days when applying for EIDL financing. Even if the EIDL application is denied, the nonprofit is not required to repay the $10,000 grants. Notably, all “private nonprofit organizations” are eligible for the EIDL financing, including trade associations, advocacy organizations, unions and social clubs, which are not eligible for financing under the PPP. The EIDL also offers nonprofits loans at 2.75% of up to $2 million and a maximum term of 30 years, with principal and interest deferment available for up to four years. The loan proceeds under this program are designed to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses.

Charitable Donation Incentives

The CARES Act modifies charitable contribution limitations to incentivize donations to nonprofits. Under the CARES Act, individuals who use the standard deduction will be allowed to deduct up to $300 of qualified cash contributions for the 2020 tax year. The CARES Act also modifies corporations’ charitable contribution limit from 10% to 25% of taxable income. Similar to individuals, if a corporation’s contributions exceed the 25% limitation, the excess contributions may be carried over for the next five tax years.

Employee Retention Tax Credit 

The CARES Act provides for a refundable payroll tax credit up to a $5,000 per employee for nonprofits, not to exceed $10,000, where operations were affected by the COVID-19 shutdown order or whose gross receipts declined by more than 50% when compared to the same quarter in the prior year. This credit is available for wages paid or incurred from March 13, 2020 through December 31, 2020. Please note that a loan under the PPP makes the organization ineligible for this credit.

Unemployment Benefits 

The CARES Act allows nonprofits to be reimbursed for half of the costs incurred through the end of 2020 to pay unemployment benefits, including self-funded unemployment benefits.

Rivkin Radler is available to assist your nonprofit organization with resolving the unprecedented impacts from the COVID-19 epidemic. Please check our Coronavirus Resource Center for additional articles. If you have any questions or need guidance with respect your nonprofit organization or the provisions of the CARES Act, please contact us at 518-462-3000.