The CARES Act: What Not-for-Profits Need to Know

By Amber Tucker, CPA, Director, Assurance & Advisory Services
Mar 30, 2020

On March 27, the House unanimously passed and President signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion economic stimulus law intended to provide immediate relief for individuals, nonprofits, businesses, and state and local governments. The CARES Act is the third law enacted in response to the COVID-19 pandemic.

What are key aspects for not-for-profits to be aware of:

Paycheck Protection Program (PPP)  Loans, creates an loans for eligible nonprofits and small businesses, permitting them to cover costs of payroll, operations, and debt service, and provides that the loans will be forgiven in whole or in part under certain circumstances.

  • General Eligibility: Available to entities that existed on February 15, 2020 and had paid employees or paid independent contractors and  charitable nonprofits with 500 or fewer employees (counting each individual – full time or part time and not FTEs). The law does not disqualify not-for-profits that are eligible for payments under Title XIX of the Social Security Act (Medicaid), but does require that employees of affiliated not-for-profits may be counted toward the 500 employee cap, depending on the degree of control of the parent organization.
  • No Personal Guarantee: No personal guarantee or collateral will be required in securing a loan.
  • Loan Amount: The lesser of $10 million or 2.5 times the average total monthly payroll (including benefits) costs from the one-year period prior to the date of application
  • Loan Use: Loan funds can be used to make payroll and associated costs, including health and retirement benefits, facilities costs, and debt service.
  • Loan Forgiveness: Employers that maintain employment for the eight weeks after the origination of the loan, or rehire employees by June 30, would be eligible to have their loans forgiven, essentially turning the loan into a grant.

Additional concepts in the CARES act to consider:

  • Economic Injury Disaster Loans (EIDL): Creates emergency grants for eligible nonprofits and other applicants with 500 or fewer employees enabling them to receive checks for $10,000 within three days.
  • Self-Funded Nonprofits and Unemployment: Only reimburses self-funded nonprofits for half of the costs of benefits provided to their laid-off employees. This is explained in a recent blog article.
  • Charitable Giving Incentive: Creates a new above-the-line deduction (universal or non-itemizer deduction that applies to all taxpayers) for total charitable contributions of up to $300. The incentive applies to cash contributions made in 2020 and can be claimed on tax forms next year. This is also an option for Businesses to continue with certain limitations.
  • Employee Retention Payroll Tax Credit: Creates a refundable payroll tax credit of up to $5,000 for each employee on the payroll when certain conditions are met. The entity had to be an ongoing concern at the beginning of 2020, experienced a whole or partial shutdown, and had seen a drop in revenue of at least 50 percent in the first quarter compared to the first quarter of 2019. The availability of the credit would continue each quarter until the organization’s revenue exceeds 80 percent of the same quarter in 2019. For tax-exempt organizations, the entity’s whole operations must be taken into account when determining eligibility. Notably, employers receiving Paycheck Protection Program loans would not be eligible for these credits.
  • Delayed Payment of Payroll Taxes: Allows employers to delay payment of the employer portion payroll taxes in 2020; payable in equal halves at the end of 2021 and 2022.
  • Economic Stabilization Fund: Mid-sized nonprofits and businesses that have between 500 and 10,000 employees are expressly eligible for loans. Although there is no loan forgiveness provision in this section, the mid-size business loans would be charged an interest rate of no higher than two percent and would not accrue interest or require repayments for the first six months. Nonprofits accepting the mid-size business loans must retain at least 90 percent of their staff at full compensation and benefits until September 30. 

Another option:

The Small Business Administration (SBA) currently has Economic Injury Disaster Loans (EIDL). The existing program provides loans of up to $2 million at an interest rate of 2.75 percent for not-for-profits. These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact.  Important to remember this is not a forgivable loan.

What now:

There are many facts and circumstances to consider with the funding options above and the changes with Families First Coronavirus Response Act (FFCRA) enacted March 18, 2020. The application forms for the PPP are not yet available but you can be making sure your financial records are in order. At a minimum internal financial statements and budgets will most likely be required. The SBA EIDL can be applied for now. Call us today if you want to discuss your next steps and your strategic plan moving through these challenging times.