The CARES Act: Key Benefits for Non-Profits & Donors
The CARES Act provides substantial benefits to support the livelihood of non-profits, directed at both non-profits organizations as well as donors.
For Non-Profit Organizations:
Through the CARES Act, non-profits of all types and sizes are eligible for a variety of loan programs and payroll provisions as detailed below:
- Paycheck Protection Program
- Public 501(c)(3) non-profit organizations with 500 or fewer employees are eligible to apply for and receive a loan through the Paycheck Protection Program, sponsored by the Small Business Association. Loans are available for 2.5 times monthly payroll costs (up to $10 million). The proceeds from the loan may be used to cover payroll costs, rent, interest on mortgages, and utilities. A borrower may seek forgiveness on the loan, so long as at least 75% of the loan is used toward payroll costs over an 8-week evaluation period. While the first round of funding for the Paycheck Protection Program has been exhausted, an additional $310 billion was made available in a bill passed on Friday, April 24th. The application period ends on June 30.
- Economic Stabilization Fund
- For public non-profits with more than 500 employees, these organizations may be eligible for a loan through the Economic Stabilization Fund. To qualify for these loans, non-profits must retain at least 90% of their employees. Unlike the Paycheck Protection Program, loans made through the Economic Stabilization Fund are not forgivable. However, the loans will have an annual interest rate no greater than 2% and no principal or interest payments will be due for at least six months. There are no standard loan terms, but instead will be at the discretion of the U.S. Treasury.
- Economic Industry Disaster Loans
- For private non-profits, which are excluded from the Paycheck Protection Program and Economic Stabilization Fund, they may be eligible to receive an Economic Industry Disaster Loan (EIDL). EIDLs are available for up to $2 million, but unlike the other two loan programs, loan qualification is based upon credit score and the ability to repay the loan. The annual interest for non-profits on an EIDL is 2.75% with loan terms going out as far as 30 years. Private non-profits can also apply for a $10,000 upfront, emergency grant that will not have to be repaid.
Payroll Tax Relief
- Reimbursed Unemployment Benefits
- The CARES Act provides additional funds to states to reimburse non-profits for one-half of unemployment benefit costs incurred from March 13, 2020 to December 31, 2020.
- Employee Retention Payroll Tax Credit
- Eligible non-profit organizations that have suspended operations due to government orders from COVID-19 or that suffer a 50% or greater reduction in year-over-year gross receipts may be entitled to a refundable payroll tax credit. The tax credit amounts to 50% of the wages paid from March 13, 2020 to December 31, 2020 for employees who are unable to work due to suspended operations (capped at $5,000 per employee). Additionally, for non-profits with less than 100 employees, the organization may also claim a credit for those employees that continue to work throughout the closure. Non-profits that participate in the Paycheck Protection Program are not eligible to receive the tax credit.
- Payroll Tax Extension
- The CARES Act allows non-profits to defer their portion of Social Security payroll taxes through the end of 2020. The deferred taxes will be paid over a two-year period, with the first half due December 31, 2021 and the second half due December 31, 2022. Similar to the payroll tax credit, non-profits participating in the Paycheck Protection Program are not eligible for the tax deferral.
In addition to the benefits provided directly to non-profits, the CARES Act also provides enhanced tax relief for donors through “above-the-line” deductions and increased donation limitations on Adjusted Gross Income (AGI).
$300 “Above-the-Line” Deduction
Previously, only those who itemized deductions were eligible to deduct charitable contributions from their Adjusted Gross Income (AGI). However, with the passage of the CARES Act, those who select the standard deduction in 2020 will be allowed to take up to a $300 deduction for charitable donations on top of the standard deduction. To qualify for this above-the-line deduction, the donation must be made in cash and to a qualified non-profit organization. Donations to donor advised funds (DAFs) are not included. Similarly, the above-the-line deduction is not permissible for those that choose to itemize deductions.
Ultimately, the $300 “Above-the-Line” deduction is a mutual benefit for non-profits and donors alike, as it incentivizes individuals to donate who otherwise would not have received any tax benefit.
Increased AGI Limitations: Individuals & Businesses
For those that choose to itemize deductions, the CARES Act has increased the qualified charitable contribution limitation for individuals from 60% to 100% of AGI in 2020. The deduction may not exceed 100% of one’s AGI, but any excess qualified contributions can be carried forward for five years. The increased limitations are not automatically applied, so individual taxpayers will need to elect for the suspension of limitations for the qualifying contribution(s). Contributions to a donor advised fund (DAF) or a private foundation do not qualify for the increased limitations.
Similarly, the CARES Act also increases the qualified charitable contribution limitation for corporations from 10% to 25% of taxable income. In addition, corporations can deduct up to 25% (up from 15%) of taxable income for food donations.
It is likely that many individuals and business are unaware of these new tax relief provisions for charitable donations as many have been focused on the direct individual payments and forgivable loan programs that headline the CARES Act. It is crucial for non-profits to spread awareness of these benefits as it could result in increased donations needed for non-profits to sustain operations, continue their missions, and build for the future.