On March 27, President Trump signed into law a $2.2 trillion economic stimulus package in response to the COVID-19 pandemic. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) includes tax and non-tax provisions to assist individuals and not-for-profit organizations.
While there are other provisions of the program that are benefiting specific segments (for example, grants to colleges and universities as well as state and local governments), the following is intended to assist you in focusing on the most likely provisions that might require your action in order to benefit.
One major element of the CARES Act is the liberalization of the availability of loans from the Small Business Administration (SBA). This could materially assist in your immediate cash flow needs. Entities with fewer than 500 employees may be eligible for what is known as the Paycheck Protection Program (PPP) forgivable loan. Such loans are being funded by the SBA via approved banks, so organizations should reach out to their banking partners to discuss the process. Key provisions of the PPP Loan are as follows:
- The maximum loan is the lesser of $10 million or 2.5 times the average monthly payroll for the previous 12 months
- Payroll costs for this calculation include salaries and wages, paid time off, group health benefits, retirement benefits, and state and local taxes subject to a $100,000 cap per employee
- The proceeds can be used for 8 weeks of allowable costs incurred between the loan date and June 30, 2020 which include:
- Payroll costs
- Continuation of group health care benefits
- Mortgage interest
- Interest on debt incurred prior to Feb.15, 2020
- Rent and utilities
- Borrowers need to certify that the loan is needed to support ongoing operations due to the uncertainty of current economic conditions and that the loan will be used to retain workers, maintain payroll or make mortgage, lease, and utility payments
- The portion that is forgiven is based on maintaining employee levels, so to the extent that average headcount or salaries and wages drop during the period the loan funds are used, a proportional amount of the loan is not forgivable
- To the extent all or a portion of the loan is not forgiven, it has an interest rate of 1.0% and is due in two years
- Loans under this program available from date of CARES Act until June 30, 2020, up to an aggregate of $349 billion
If you think your organization may meet the criteria, consideration should be given to apply for this program. A link to the standard application can be found here and further details about the program are in this document. Organizations should also be mindful that if a PPP Loan is taken, then the organization is not eligible for the payroll tax credit or deferral programs offered by the CARES Act.
CARES Act: Tax Provisions
Entities not using or qualified for the PPP program above have other major potential benefits under the CARES Act. This includes retention tax credits that could be valuable and permanent in the way of savings, deferral of payment of the employer share of FICA tax that could help with cash flow and liberalization of tax deductibility of charitable contributions that might enhance your ability to generate contribution revenue this year. For detailed information on how these provisions work, please read our selection of provisions that we found most important to share with the Not-For-Profit and Education Sector.
The situation around the COVID-19 virus continues to evolve. Our team will continue to provide updates as information becomes available through our COVID-19 Resource Center. Additionally, we will be hosting an upcoming webinar “The CARES Act and Other Important Not-For-Profit Accounting and Tax Updates for 2020 and Beyond” on April 15, 2020 from 12:00 p.m. – 1:15 p.m. EDT. You can register for the webinar here. For more information, please contact us.
Patrick Quinn is a Managing Director at CBIZ &MHM and is a member of the Not-for-Profit Practice. He can be reached at (401) 626-3211 or firstname.lastname@example.org.