What exempt organizations need to know about federal responses to COVID-19
As funding and application guidelines for the Paycheck Protection Program (PPP) and SBA disaster relief grants and loans program change, visit our Coronavirus Resource Center for our latest information and guidance. You can also contact our national SBA loan task force or your CohnReznick engagement team for assistance with filing for these loans and providing required financial documentation.
On March 27, 2020, President Donald Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, providing sweeping relief to individuals and businesses via direct payments, grants, loans, and enhanced unemployment benefits. Previously, on March 18, he signed into law the Families First Coronavirus Response Act (FFCRA), establishing emergency paid sick leave and paid Family and Medical Leave Act requirements for government employers and employers with fewer than 500 employees. These bills represent Phases III and II, respectively, of the federal government’s four-phase legislative response to COVID-19. Phase I, enacted March 6, ensured that potential vaccines will be affordable; authorized and funded the Small Business Association (SBA) to make economic injury disaster loans (EIDLs) to businesses impacted by COVID-19; and expanded telemedicine access for Medicare recipients. We are closely monitoring the progress of the Phase IV legislation, as well as any associated regulatory developments.
Read on for our summary of the impacts of the new changes on tax-exempt organizations.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act
Details of each provision:
- SBA 7(a) Paycheck Protection Program (PPP)
o Available to 501(c)(3) and 501(c)(19) organizations with fewer than 500 employees.
o Offers federally insured, partially forgivable loans to pay for covered operating expenses during the economic crisis.
o Covered operating expenses do not include compensation for individuals who reside outside of the U.S.; for U.S. residents, compensation in excess of $100,000 annually; FICA taxes; federal and state income withholding taxes; or qualified family and sick leave for which a credit is allowed under the FFCRA.
o See our overview of the PPP for more information.
- SBA 7(b) emergency EIDL grants
o Available to private exempt organizations with fewer than 500 employees.
o Organizations affected by COVID-19 that apply for an economic injury disaster loan (EIDL) can request an emergency advance of up to $10,000 within three days of applying for the EIDL. According to a Senate guide for small businesses, “The advance does not need to be repaid under any circumstance, and may be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments.”
o Most organizations principally engaged in religious, political, or lobbying activities are not eligible to receive an EIDL.
o The Senate guide says that the grants are backdated to Jan. 31, 2020, so those who have already applied for an EIDL can still receive a grant.
o See our overview of the SBA disaster relief loan program for more information.
- Employee retention payroll tax credit
o Available to any 501(c) exempt organization that has not received assistance through the PPP.
o Provides a refundable payroll tax credit for 50 percent of wages paid by any such organization to their employees during the COVID-19 crisis. The credit is not to exceed $5,000 per employee and is limited to businesses that were “carrying on a trade or business” during 2020 and either were forced to fully or partially shut down or experienced a “significant decline in gross receipts” due to COVID-19.
o “All operations” of Internal Revenue Code (IRC) Section 501(c) organizations shall be considered for purposes of calculating the decline in gross receipts.
o Larger businesses (more than 100 employees) only receive the credit for wages paid to employees who are not providing services due to COVID-19, while smaller businesses (100 or fewer employees) can receive the credit for all wages paid.
- Social Security tax deferral
o Available to any exempt organization owing tax under IRC Section 3111(a) that has not received loan forgiveness under the PPP.
o Defers payment of employer’s share of Social Security taxes due through the end of 2020 to be repaid in two 50% installments due Dec. 31, 2021, and Dec. 31, 2022.
- Exchange stabilization funds
o Available to all tax-exempt organizations with 500 to 10,000 employees.
o Providing “loans, loan guarantees, and other investments” for any “United States business that has not otherwise received adequate economic relief” under CARES.
o Along with other restrictions, the funds must be used to retain 90 percent of the recipient’s workforce through Sept. 30, 2020.
The CARES Act also creates the following charitable-giving incentives:
- Adds a new above-the-line deduction for cash contributions up to $300 for individual taxpayers who do not itemize.
- Suspends for 2020 the “50% of adjusted gross income” charitable contribution deduction limit for cash contributions by individuals (currently 60%, under the 2017 Tax Cuts and Jobs Act ), raises the same for corporations to 25 percent from 10 percent, and raises the limitation on deductions for food inventory from 15 percent to 25 percent.
The Families First Coronavirus Response Act (FFCRA)
The FFCRA provides the following changes for exempt organizations:
- Amends the Family and Medical Leave Act of 1993 (FMLA) to require covered employers (including exempt organizations) to provide up to 12 weeks of job-protected leave for employees to care for a child whose school or care provider is unavailable because of a public health emergency.
- Creates the Emergency Paid Sick Leave Act, requiring covered employers (including exempt organizations) to provide employees with paid sick leave through December 2020 due to needs related to COVID-19.
- The law provides an offsetting payroll tax credit equal to the amount paid out for emergency leave under the FFCRA.
- “Covered employers” include private businesses with fewer than 500 employees and most public agencies.
- Certain health care providers, emergency responders, and small businesses with fewer than 50 employees may be exempt from the above provisions of the FFCRA.
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 professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. 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 members, 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.
Coronavirus Resource Center