A review of the American Rescue Plan Act for not-for-profits
On March 11, 2021, President Biden signed the American Rescue Plan Act (“the Act”), a $1.9 trillion COVID-19-relief stimulus package that includes several important provisions for nonprofits.
Employee Retention Credit (ERC)
The March 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act included a fully refundable federal payroll tax credit called the Employee Retention Credit (ERC) for employers whose trade or businesses were fully or partially suspended due to COVID-19 or that experienced a significant decline in gross receipts, equal to 50% of up to $10,000 of “qualified wages” (including certain employer health plan premiums and employee pre-tax health plan premiums, or “qualified health plan expenses”) paid to each employee after March 12, 2020, and before Jan. 1, 2021, or $5,000 per qualifying employee. The December Consolidated Appropriations Act extended the availability of the ERC to the first two calendar quarters of 2021, increased the amount of applicable qualified wages to $10,000 per quarter, increased the credit amount to 70% of qualified wages, and eased the thresholds for large versus small employer status and for determining whether a significant decline in gross receipts had occurred.
The new Act extends the availability of the ERC to the third and fourth quarters of 2021, each with its own $10,000-per-employee maximum amount of qualified wages/qualified health plan expenses. However, the credit will only be allowed against Medicare taxes for the third and fourth quarters, as opposed to the previous allowance against Social Security taxes.
In addition to the extension of the ERC, the Act also makes certain modifications to the credit for the third and fourth quarters, including:
- Adding an alternative eligibility standard, if the employer is a “recovery startup business,” which is defined as follows:
- The employer began carrying on any trade or business after Feb. 15, 2020.
- The employer’s average annual gross receipts (as determined under Section 448(c)(3)) for the up-to-three-year period before the applicable quarter may not exceed $1 million.
The ERC is limited to $50,000 per quarter for an employer that is a recovery startup business.
- Expansion of small employer treatment for an employer with any number of full-time employees in 2019 that constitutes a “severely financially distressed employer,” which is defined as:
- An employer that has gross receipts for a quarter that are less than 10% of its gross receipts for the same quarter in 2019 (i.e., a gross receipts reduction of more than 90%)
The Act also extends the limitation period on ERC-related assessments from three years to five years from the date of filing the applicable Form 941.
It is important to note that there are rules in place to prevent “double-dipping” of expenses for the ERC and the Paycheck Protection Program (PPP), Shuttered Venue Operators Grants (SVOGs), and other COVID-19 relief programs. For example, qualified wages/qualified health plan expenses are ineligible for the ERC if they are/were used to obtain forgiveness on a PPP loan forgiveness application. If your organization is planning to pursue more than one of these options, talk to an advisor to understand how they interact.
Payroll tax credit for voluntary FFCRA paid sick and family leaves
The March 2020 Families First Coronavirus Response Act (FFCRA) mandated COVID-19-related paid sick and family leave for employees of employers having fewer than 500 employees, and provided those employers with a fully refundable federal payroll tax credit in connection with their providing those leaves. The December Consolidated Appropriations Act eliminated the mandate, but continued the availability of the credit for the first calendar quarter of 2021 for eligible employers that voluntarily provided those leaves during that quarter. The American Rescue Plan Act extends the availability of the payroll credit to eligible employers that voluntarily provide paid leaves during the second and/or third calendar quarters of 2021, and also adds additional qualifying standards for the paid leaves; provides for a full post-second-quarter reset of the number of days for which paid sick leaves will be available; and imposes new nondiscrimination requirements.
Paycheck Protection Program (PPP)
In addition to adding new opportunities for first- and second-draw PPP loans – loans for first-time borrowers and additional loans for those who received first-draw loans, respectively – the December Consolidated Appropriations Act extended the availability of PPP loans to most Section 501(c)(6) organizations that were excluded from taking such loans under the March 2020 CARES Act, subject to specified limitations on lobbying activity. The Small Business Administration (SBA) has now clarified through a new item in its PPP FAQ, Number 57, added March 3, that “for purposes of determining the eligibility of Section 501(c)(6) organizations and destination marketing organizations for First Draw and Second Draw PPP Loans, ‘lobbying activities’ is defined in Section 3 of the Lobbying Disclosure Act (LDA) of 1995.” The LDA has a narrow definition of lobbying as compared with the IRS tax code’s definition, which may allow many more 501(c)(6) organizations to be eligible.
The American Rescue Plan Act adds $7.25 billion in new funding for the PPP and contains many provisions that specifically apply to nonprofit organizations.
Expansion of nonprofit eligibility
The Act now allows all organizations described in Section 501(c), excluding 501(c)(4) organizations, to be considered eligible to apply for a PPP loan.
To be eligible, the additional covered nonprofit entity must not:
1. Receive more than 15% of its receipts from lobbying activities;
2. Have lobbying activities comprise more than 15% of the organization’s total activities;
3. Have spent more than $1 million on lobbying activities during the most recent tax year that ended prior to Feb. 15, 2020; and
4. Employ more than 300 individuals per physical location.
Special rule for larger nonprofit organizations
The Act broadened the eligibility for certain larger nonprofit organizations by setting a “per physical location” employee threshold, so that organizations that have more than one physical location can be considered eligible provided that they do not exceed that threshold. Guidelines are as follows:
- Sections 501(c)(3) organizations are eligible if the organization employs no more than 500 employees per physical location.
- All other 501(c) organizations, excluding 501(c)(3), 501(c)(4), and 501(c)(19), are eligible if they employ no more than 300 employees per physical location. (501(c)(19) organizations must employ no more than 500 employees total.)
Most notably, the Act did not extend the deadline for submitting applications from the March 31, 2021, due date. However, the PPP Extension Act of 2021, signed on March 30, has now extended the PPP application filing window by 60 days to May 31, 2021.
Shuttered Venue Operators Grant (SVOG) program
$1.25 billion is appropriated for the Shuttered Venue Operators Grant (SVOG) program. The Act also formalized the change recently released by SBA that allows organizations to receive both a SVOG and a first- and/or second-draw PPP loan, in certain circumstances, though the SVOG amount will be reduced by any received PPP loan amounts.
Economic Injury Disaster Loan (EIDL) Advances
The Act appropriates $15 billion in additional funding for Targeted Economic Injury Disaster Loan (EIDL) Advances, and provides that amounts received from the SBA in the form of these advances shall not be included in the gross income of the person receiving such amount.
Restaurant Revitalization Fund
The Act appropriates $28.6 billion to establish a “Restaurant Revitalization Fund,” which will provide grants to restaurants (and food trucks/stands, caterers, taprooms, and other defined businesses “in which the public or patrons assemble for the primary purpose of being served food or drink”) that were economically impacted by COVID-19. Grants will be provided equal to the entity’s “pandemic-related revenue loss” – generally, the difference between their 2019 and 2020 gross receipts, up to $10 million (or $5 million per physical location) and reduced by the amount of any PPP loans previously received. Funds can be used during a specified covered period for payroll costs; payments of principal or interest on any mortgage obligation; rent payments; utilities; defined maintenance expenses; supplies, including protective equipment and cleaning materials; certain food and beverage expenses; covered supplier costs; operational expenses; paid sick leave; and “any other expenses that the [SBA] Administrator determines to be essential to maintaining the eligible entity.” Significantly, the amounts received will not be included in the recipient’s gross income. Organizations cannot apply and receive for both a restaurant grant and a SVOG.
- Not-for-Profit & Education
- Exempt Organizations Tax Services
- Paycheck Protection Program (PPP) Loan Forgiveness Assistance
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
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InsightEmployee Retention Credit (ERC) now available for all of 2021, and PPP loan recipients can claim ERCsDana FriedRead how ERC requirements have changed for 2021, including what counts as qualified wages, who is an eligible employer, the maximum credit amount, and more.
InsightShuttered Venue Operators Grant program open for applicationJohn LanzaRead insights on what businesses and not-for-profits impacted by COVID-19 need to know on Shuttered Venue Operators Grants (SVOG).
InsightThe Restaurant Revitalization Fund and other hospitality-related updates from the American Rescue PlanStephanie O’Rourk, Taylor SphonRead about the Restaurant Revitalization Fund – rules on eligibility, grant amount, and more – plus tax credit changes and other Act highlights.