Last updated: April 28, 2020
Over the last week, we’ve seen several provisions of the CARES Act—the major coronavirus response and relief bill that Congress passed—go into effect. If you’re wondering what that means for your organization, you’re not alone.
That's why we created this resource with background on the legislation, information on accessing the SBA program loans, and the potential impact on nonprofits.
BACKGROUND ON THE CARES ACT
The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) was signed into law on March 27th as the third major piece of coronavirus relief legislation. Major components of the law included:
- One-time stimulus checks to all American citizens with total income under $100,000 in 2019, with most recipients receiving $1,200
- Increases in the amount and duration of unemployment benefits
- A small business loans program, with loan forgiveness for businesses that choose not to lay off employees
- A corporate bailout package
- Adjustments to the tax code related to charitable giving
CHANGES TO THE CHARITABLE DEDUCTION: LEGISLATION
- The CARES Act raises the maximum charitable deduction for qualified contributions for both individuals and C corporations.
- Individuals who itemize on their taxes previously were limited to deductions up to 60 percent of their adjusted gross income.1 That limit is now 100 percent of their adjusted gross income.
- Individuals who take the standard deduction are now also eligible for a charitable deduction of up to $300 in cash gifts.
- Similar provisions have been established for C corporations. The limit was previously 10 percent of taxable income and is now 25 percent.
- This new deduction limit applies only to qualified contributions.2 Donations to supporting organizations and donor-advised funds may still be deducted. However, any deduction to these organizations will reduce the deduction limit for qualified contributions accordingly.
- For example: An individual who earns $10 million in 2020 and donates $10 million to a local art museum and $1 million to their donor-advised fund will only be eligible for a $10 million deduction despite having donated $11 million.
- Only contributions made in the 2020 calendar year are eligible, regardless of a C corporation’s fiscal year.
Sources and further reading:
Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates: CARES Act Increases Deductions for Certain Charitable Contributions
The National Council of Nonprofits: Coronavirus Aid, Relief, and Economic Security Act CARES Act
THE SMALL BUSINESS LOANS PROGRAM: LEGISLATION
- Congress passed an additional $484 billion coronavirus relief package to replenish the depleted emergency fund for small businesses and to expand coronavirus testing around the country. Details regarding the components of the SBA loans and how to apply are below. This bill was signed into law on April 24th and loan applications resume on April 27th. Major components of the aid include:
- $310 billion to replenish the emergency fund (Paycheck Protection Program)
- $60 billion for the Small Business Administration’s emergency loan program—divided into $50 billion in loans and $10 billion in grants
- $75 billion for hospitals and healthcare providers and $25 billion for expanded testing
- The Paycheck Protection Program (PPP) is an emergency loan program allowing nonprofits and small businesses to secure funds to pay staff and operating costs for two months and secure full loan forgiveness under certain circumstances.
- Size Eligibility: 500 or fewer employees
- Loan Use: Payroll costs, mortgage interest payments, rent, utilities, and interest on prior debt during the 8-week period following loan origination.
- Dollar Amount: The lesser of $10 million or 2.5 times the average total monthly payroll costs from the one-year period prior to the date of application. Express 7(a) loans available up to $1 million.
- Loan Forgiveness: Employers that maintain employment for the 8 weeks after origination of loan, or rehire employees by June 30, will have loans forgiven in whole or part, essentially turning the loan into a grant.
- No personal guarantee required. Organizations can apply by contacting their bank directly.
- Loans carry a 1% interest rate and are due in two years.
- An additional SBA program, Economic Injury Disaster Loans (EIDL), offers an advance of up to $10,000 to small business owners. The EIDL program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to overcome temporary loss of revenue.
- These loans may be used to pay fixed debts, payroll, accounts payable, and other bills that can’t be paid because of the disaster’s impact.
- Small businesses can apply to both PPP and EIDL. However, the EIDL grant cannot be combined with PPP. Proceeds from any advance up to $10,000 on an EIDL Loan will be subtracted from the PPP loan forgiveness amount and must be declared when applying for the PPP.
- With the additional funding provided by the new COVID-19 relief package, SBA will resume processing EIDL Loan and Advance applications that are already in the queue on a first-come, first-served basis. SBA is yet to provide information on the availability to receive new applications.
- Nonprofits receiving emergency SBA loans are not eligible for the refundable payroll tax credit of up to $5,000 for each employee on the payroll.
- Nonprofits that self-fund unemployment benefits could get reimbursed for up to half the costs of benefits provided to their laid-off employees.
Sources and further reading:
The Chronicle of Philanthropy:
- Trump Signs Stimulus Bill Providing Nonprofit Loans, Grants, and “Universal Deduction”
- How Nonprofits Can Apply for Loans and Other Emergency Benefits
The National Council of Nonprofits: easy to read chart for Loans Available for Nonprofits in the Cares Act
Bench: EIDL vs. PPP: The Breakdown
U.S. Small Business Administration: Additional Economic Injury Disaster Loan Funding
THE SMALL BUSINESS LOANS PROGRAM: IMPACT
- The program had a chaotic first launch on April 3rd, followed by the revelation that many public companies received loans while smaller mom-and-pop shops were shut out completely when the original $350 billion allocated to the PPP ran out.
- This is a first-come, first-served process. Almost immediately after the program relaunched on April 27th, reports began surfacing that E-Tran, the computer system that the SBA uses to process loan applications from banks, was repeatedly crashing and overloading the same way it did during the first days of the program.
- SBA says it approved more than 1.6 million loans during the first phase of the PPP. On April 27th alone, the SBA said it processed more than 100,000 PPP loans by more than 4,000 lenders.
- Some small nonprofits have reported additional delays related to their nonprofit status.
Sources and further reading:
The Chronicle of Philanthropy: Small Nonprofits Struggle to Get Payroll Loans in New Federal Program
HOW THIS ACT MIGHT AFFECT NONPROFITS
- As the bill was being drafted, a group of prominent nonprofit organizations advocated for a $60 billion fund specifically for nonprofits—a provision that was not included in either bill.
- The Consumer Bankers Association, which represents the nation’s big retail banks, estimates it will take $1 trillion to meet the demand from small businesses. The Association expects the second round of funding to run out in about four days.
- Since the coronavirus crisis has begun, many non-charitable institutions—such as bars and restaurants—have been soliciting donations from the public through GoFundMe or other sites, increasing the competition for charitable giving.
- Mutual aid groups, organized primarily online, are helping to provide basic services like grocery delivery for elderly neighbors, an indication that many Americans are eager to help.
Sources and further reading:
The Chronicle of Philanthropy: Trump Signs Stimulus Bill Providing Nonprofit Loans, Grants, and “Universal Deduction”
As always, we’re here for you during this difficult time. Campbell & Company is still offering free consultations with a member of our team to all interested organizations—reach out to us at firstname.lastname@example.org to schedule a conversation.
We also encourage you to review our COVID-19 resource page.
1 Adjusted gross income is defined by the IRS as gross income (including wages, capital gains, business income, and other sources of income) minus all adjustments (including student loan interest, educator expenses, child support, and retirement contributions). Source: https://www.irs.gov/e-file-providers/definition-of-adjusted-gross-income
2 The IRS considers donations to most nonprofit organizations, religious organizations, government funds, foundations, and other relevant organizations to be “qualified.” A more in-depth set of guidelines can be found here: https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions