the cares act and nonprofit organizations...the cares act and nonprofit organizations brief history...

THE CARES ACTAND

NONPROFIT ORGANIZATIONSAPRIL 7, 2020

Sara M. Dayton, CPADonna M. Gonser, CPASarah M. Hopkins, CPA

The CARES Act and Nonprofit Organizations

BRIEF HISTORY

• March 13, 2020 ‐ COVID‐19 Emergency Declaration issued• March 27, 2020 ‐ Coronavirus Aid, Relief, and Economic

Security Act (CARES Act) legislation signed into law– $2 trillion package designed to provide financial relief to businesses,

individuals, families and nonprofits affected by COVID‐19 pandemic

• April 2, 2020 – SBA issued Interim Final Rule clarifying andchanging the PPP loan program under CARES Act

• April 6, 2020 – Most local lending institutions begin acceptingPPP loan applications

• Today – Many questions still unanswered

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MAJOR PROVISIONS FOR NONPROFITS• Loans

– Paycheck Protection Program (PPP)– Economic Injury Disaster Loans and Emergency Grants– Exchange Stabilization Fund

• PPP Loan Forgiveness• Employee Retention Payroll Tax Credits• Delay of Certain Payroll Tax Payments• Unemployment Benefits• Charitable Giving Initiative

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PPP LOANS• Loan principal and interest eligible for loan forgiveness• Eligibility (First come, first served)

– 501(c)(3) and 501(c)(19) Organizations with 500 or fewer FT and PT employees

– Applicant in operation on February 15, 2020 and had employees for whom it paid salaries and payroll taxes

• Certifications of Borrower– Borrowers responsible for certifying eligibility and lenders generally

held harmless if meet minimal requirements– Current economic uncertainty makes loan request necessary to

support the ongoing operations of applicant – Funds used for allowable purposes– Loan forgiveness information– Will not receive another loan under program between 2/15 and

12/31/203


PPP LOANSCONTINUED

• Loan Amounts– 2.5 times payroll average monthly payroll costs for prior year, up to

$10 million– Payroll costs, including compensation to employees (not in excess of

$100,000 annually); vacation; parental, family, or medical or sick leave; severance; group healthcare benefits; retirement; and state and local employment taxes

• Permissible Uses for Forgiveness

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PPP LOANSCONTINUED

• Loan Terms– Six month deferment for interest and principal; interest will continue

to accrue– 1% interest– Two year maturity– No collateral or personal guarantees required; other traditional SBA

requirements waived

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EIDL LOANS AND GRANTS• Expanded eligibility for EIDL loans• Waives SBA program requirements such as personal

guarantees (if below $200k); a year of prior operations; and the ability to obtain credit elsewhere

• Until 12/31/20, SBA can approve loans based solely on applicant’s credit score or other appropriate methods

• 501c organizations with 500 or fewer employees are eligible• Able to apply for both EIDL and PPP but cannot use same

expenses• Interest at 2.75% for nonprofits; up to 30 year term• $10k emergency advance within 3 days; no repayment;

generally can be used for payroll costs, rent, debt payments

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LARGE NONPROFITS• Nonprofits with > 500 employees

– Large nonprofits not eligible for PPP or EIDL – Eligible for Employee Retention Credits (note different rules for above

and below 100 employees)– Eligible for Payroll Tax Payment Delay – Exchange Stabilization Fund

• Loans, loan guarantees, and other investments to industries affected by the coronavirus

• Provide financing to banks and other lenders that make direct loans to eligible businesses including, to the extent practicable, nonprofit organizations, with between 500 and 10,000 employees, with such direct loans being subject to an annualized interest rate that is not higher than 2% per annum; interest deferred for at least first 6 months

• Certain certifications related to economic uncertainty and retaining workforce

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LOAN FORGIVENESS –OVERVIEW• Provision within CARES Act, Section 1106, which allows for

forgiveness of up to the entire amount of PPP loans• Amount of forgiveness will depend on:

– Total amount of payroll costs as defined (for purposes of forgiveness only, excludes FICA and federal withholdings imposed or withheld from 2/15/20 – 6/30/20 – expect more clarification on this)

– Payments of interest on mortgage obligations incurred before 2/15/20– Rent payments on leases dated before 2/15/20– Utility payments under service agreements dated before 2/15/20– Over eight‐week period following origination of loan (the “covered

period”)– Not more than 25% of the loan forgiveness amount may be

attributable to non‐payroll costs

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LOAN FORGIVENESS –UTILITY COSTS• Utility payments under service agreements dated before

2/15/20 are includible in the forgiveness calculation and include:– Electricity– Gas– Water– Transportation– Telephone– Internet access

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LOAN FORGIVENESS –TREATMENT• Amounts forgiven will be considered canceled indebtedness

by the lender• Both principal and accrued interest are forgiven• Amounts will not be taxable income

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LOAN FORGIVENESS –REDUCTIONS• The amount of the loan that will be forgiven is limited by:

– Reductions based on number of full‐time equivalents– Reductions based on salary and wage amounts

• To the extent that any FTE or salary and wage reductions are corrected by 6/30/20, the reduction calculations will not apply

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LOAN FORGIVENESS –REDUCTION BASED ON FTEs• Calculated as follows:

• Allowable costs = payroll, mortgage interest, rent, and utilities as previously defined

• Average number of FTEs is determined by calculating the average number of FTEs for each pay period falling within a month

• Covered period = eight‐week period following receipt of loan• Elected period can be either:

– 2/15/19 – 6/30/19– 1/1/20 – 2/29/20– Use lower number to maximize forgiveness– Seasonal employees must use 2/15/19 – 6/30/19

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Allowable costs

x avg # of FTEs during covered periodavg # of FTEs in elected period


LOAN FORGIVENESS –REDUCTION BASED ON SALARIES AND WAGES• Loan forgiveness will be reduced by any reduction in wages

that is greater than 25%– Compares wages during covered period to wages in most recent full

quarter during which employee was employed before the covered period (likely 1/1/20 – 3/31/20)

• Applies to wages of any employee who did not earn in excess of $100,000 (or amount in a given pay period that would annualize in excess of $100,000) in 2019

• No regulations yet, but current interpretation is that wages are reduced dollar for dollar by amounts in excess of 25%– Assume employee made $80,000, salary reduced to $50,000– 75% of $80,000 = $60,000, so amount in excess is $10,000– Loan forgiveness would be reduced by $10,000

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LOAN FORGIVENESS –HOW TO APPLY• An organization seeking loan forgiveness will submit to its

lender:– Documentation verifying number of FTEs for the period selected

(2/15/19 – 6/30/19 or 1/1/20 – 2/29/20) including:• Forms 941• NYS‐45

– Canceled checks, payment received, or other documents supporting claimed costs for mortgage interest, rent, and utilities

– Certification that supporting documentation was accurate and loan was used to retain employees and cover approved costs

• No later than 60 days after the date on which the lender receives an application for loan forgiveness, the lender shall issue a decision on the application; lender is held harmless

• Administrator has 30 days from date of enactment of the CARES Act to issue guidance and regulations implementing this section (expect regulations by 4/26/20)

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TAX CREDITS AND DEFERRALS• Employee retention credit (Section 2301)

– Provides a refundable payroll tax credit for certain wages paid to employees from March 13 to December 31, 2020

– Available to all employers with no size restriction– Not eligible if participating in PPP

• Employer Payroll Tax Deferral (Section 2302)– Allows employers to defer deposit of certain employment taxes for as

many as two years– Available to all employers with no size restriction– If participating in PPP and the loan is forgiven, become ineligible for

deferral

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EMPLOYEE RETENTION CREDIT• Payroll tax credit of up to $5,000 per employee for eligible

employers• Credit = 50% of qualified wages paid to employees during a

quarter from March 13 to December 31, 2020, capped at $10,000

• Claim credit by reducing federal tax deposit or by using Form 7200 Advance Payment of Employer Credits Due to COVID‐19

• Eligible employers:– Must be carrying on a trade or business during 2020 and– During the calendar quarter:

• Operations were fully or partially suspended as a result of orders from a governmental authority limiting commerce, travel, or group meetings due to COVID‐19

OR• Gross receipts for the quarter were less than 50% of the gross receipts for the same

calendar quarter in the prior year

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EMPLOYEE RETENTION CREDITCONTINUED• Qualifying wages:

– Employers with > 100 average full time employees in 2019 –• Only wages paid to employees who are not working qualify for the credit

– Employers with


EMPLOYER PAYROLL TAX DEFERRAL• Allows employers to delay payment of employer social

security taxes due from March 27 through December 31, 2020• 50% of deferred amounts are due December 31, 2021 with

the remainder due by December 31, 2022• Self‐employed individuals can take an equivalent tax deferral• Ultimate responsibility is on the employer, even if they

contract with a payroll service provider or certified professional employer organization

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UNEMPLOYMENT BENEFITS• Federal Pandemic Unemployment Compensation (FPUC)

– Provides laid‐off workers an extra $600 per week in addition to their state benefits for four months

• Pandemic Unemployment Emergency Compensation (PUEC)– Provides additional 13 weeks (total of 39 weeks)

• Pandemic Unemployment Assistance (PUA)– Furloughed, gig workers and free‐lancers eligible for benefits

• Self‐insured nonprofit organizations– Nonprofits that elect to self‐insure will be reimbursed for half of the

benefit provided to their laid‐off employees

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CHARITABLE GIVING INCENTIVE• Above the line charitable deduction for individual donors

– Provides a deduction of up to $300 for charitable contributions made in cash during 2020 for individuals who elect not to itemize deductions on their tax return

• Suspension of AGI limits for individual and corporate donors– Removes the 60% cap for charitable contributions made in cash during

2020 for individuals who itemize– Corporate limit increased from 10% to 25%

• Not applicable for contributions made to supporting organizations or donor advised funds

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QUESTIONS

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