Editor's note: On April 23, Congress allocated an additional $370 billion for nonprofits and small businesses under the CARES Act: $310 billion for the Paycheck Protection Program (PPP), and $60 billion for Emergency Economic Injury Disaster Loans (EIDL).
In late March, Congress passed significant legislation designed to provide relief to U.S. taxpayers, businesses, and nonprofits affected by the coronavirus outbreak. This new $2.2 trillion law is called the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). There's lots to unpack in it, but one thing we really want you to know is that the forgivable loan for nonprofits part of the CARES Act, called the Paycheck Protection Program, will likely run out of money soon, so if you are interested in applying, do it as soon as possible.*
We'll tell you exactly how below. Here is what is important for nonprofits to know about the CARES Act.
Also, be sure to view the conversation on this topic below between TechSoup's Ken Tsunoda and Jennifer Kawar of the Nonprofit Finance Fund.
*Note: On April 8, 2020, it was reported that the Treasury Department has asked Congress to approve additional funding for the Paycheck Protection Act.
Much Better Tax Deduction Provisions for Charities
Under the 2017 tax overhaul law, called the Tax Cuts and Jobs Act, only people who itemize their taxes could effectively claim charitable deductions. The CARES Act will now allow nonitemizers to deduct up to $300 in cash giving for the 2020 tax year. For those who itemize, the bill lifts the cap on annual giving from 60 percent of adjusted gross income to 100 percent. This information may well be useful if you participate in the upcoming #GivingTuesdayNow Day of Giving and Unity on May 5, 2020.
The Paycheck Protection Program
Reinstating charitable tax deductions for nonitemizer taxpayers would normally be massive news, but the new federal Paycheck Protection Program is possibly even bigger — at least in the short term. It's a $349 billion fund created by the CARES Act for any small business or charity with 500 or fewer employees. The loans can be forgiven if you keep employees on the payroll for eight weeks or through June 30, 2020. If borrowers meet the program's requirements for loan forgiveness, the loans essentially turn into grants.
- The Paycheck Protection Loan Fund is being handled by the Small Business Administration (SBA). Nonprofits and churches are eligible for SBA loans in this program of up to $10 million.
- The money needs to be used for payroll, including paid leave, as well as health-insurance premiums and debt service. SBA says on its website that it will forgive loans if the money is used for payroll, rent, mortgage interest, or utilities.
- Thomson Reuters reports that even though the law allows the use of the loans for such things as mortgages interest, lease payments, utilities and interest on preexisting loans, the priority is on payroll. "The draft SBA Form 2483, Paycheck Protection Program Application Form, discloses a modification to the loan forgiveness provisions. Due to likely high subscription, it is anticipated that not more than twenty-five percent of the forgiven amount may be for non-payroll costs." Bottom line — if you want most or all of the loan forgiven, devote at least 75 percent of the funds to payroll.
- Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines or if salaries and wages decrease.
- No collateral or personal guarantees are required for the loans. Neither the government nor lenders will charge small businesses any fees. However, borrowers will need to pay interest on the loans.
- The loans can be for up to 2.5 times average monthly payroll costs over the last 12 months, with some restrictions. Full-time and part-time employees are counted equally.
- SBA forgivable loans will be available through June 30, 2020, but KPMG in a recent webcast said that this program, large as it is, will probably be oversubscribed, so they recommend getting applications in ASAP. Thomson Reuters also reports that banks may well be unprepared for the onslaught in inquiries and applications because of how recent the program is and also because of evolving lending guidelines from the federal government. It may well take some persistence to get through the loan application process.
Submitting an Application
Find a downloadable Paycheck Protection Program Borrower Application Form here (PDF). After filling it out, you then go to the SBA web page, enter your zip code, and find a nearby lender eligible to issue a loan under the Paycheck Protection Program. It's probably best if you can find a bank where you already have an account. For those seeking a Paycheck Protection loan but having a hard time finding a local lender, you might try PayPal or TechSoup corporate partner, Intuit QuickBooks. Both companies have just been approved to provide access to Paycheck Protection Program loans.
Here is a summary of the information you'll need from calendar year 2019 to do an application to the Paycheck Protection Program from PNC Bank (PDF):
- 2019 IRS Quarterly 940, 941, or 944 payroll returns
- Payroll report for a 12-month period ending on your most recent payroll date, which includes gross wages to each employee if paid by W2, paid time off for each employee, vacation pay, family leave pay, and state and local tax assessments on employee compensation
- Documentation of all health insurance premiums paid by the organization
- Retirement plan funding documentation for 401(k) or 403(b) plans, SIMPLE, and SEP IRAs
The guiding principle on all this is to support your claim that, as of February 15, 2020, you had employees for whom you paid salaries and payroll taxes.
The Expanded Economic Injury Disaster Loan Program (EIDL) now has in place a rapid grant procedure that can get $10,000 to a nonprofit within three days to pay salary and operating expenses. This program is also administered by the SBA. Longer term, the program can provide up to $2 million of affordable loan assistance. To be eligible for EIDL assistance, nonprofits must have sustained economic injury and be located in a disaster-declared county or state. The CARES Act has set aside $10 billion total for the coronavirus disaster EIDL. There are no upfront fees or early payment penalties charged by SBA. The repayment term will be determined by your ability to repay the loan. This program does not have loan forgiveness. Apply online for disaster loan assistance at SBA's Disaster Loan Assistance website.
The CARES Act has also created a refundable payroll tax credit of up to $5,000 for each employee on the payroll. To be eligible, a nonprofit must have experienced a decrease in revenue of at least 50 percent in the first quarter of 2020 compared with the first quarter of 2019. The credit is available each quarter until the nonprofit's revenue exceeds 80 percent of the same quarter in 2019. Nonprofits receiving emergency SBA loans are not eligible for these payroll tax credits.
Nonprofit Quarterly reports that there is a promised Mid-Size Loan Program for nonprofits with between 500 and 10,000 employees. It will help ensure that organizations can retain at least 90 percent of their workforces. But it still needs to be designed and implemented.
We hope you find this information useful — and remember, if you plan on applying for a forgivable loan from the Paycheck Protection Program, that you need to do it as soon as possible.