New legislation designed to support millions of Americans as they continue to struggle with the impact of COVID-19 on their health, livelihood, and community went into effect at the end of 2020. One of the major provisions of the Consolidated Appropriations Act (CAA) is relief for not-for-profit organizations. Here are the highlights:
Charitable Giving Incentives
Prior to the CARES Act, individuals who took the standard deduction (i.e., do not itemize deductions) could not deduct charitable giving. The CARES Act included a temporary universal charitable deduction capped at $300 ($600 for married filing jointly) and increased deductibility for charitable contributions to 100% of adjusted gross income for individuals and 25% for corporations. These provisions were extended through December 31, 2021.
Paycheck Protection Program Loan Eligibility Extension
Eligibility for nonprofit organizations is extended to 501(c) 6 organizations and the program will run through March 31, 2021. Previously, only charitable organizations exempt under IRC 501(c)(3) were eligible to receive these loans. The PPP Loan second draw program will offer forgivable loans to non-profits that meet these conditions:
- 300 or fewer employees.
- Had a 25% reduction in gross receipts during at least one quarter of 2020 versus the same quarter of 2019.
- The maximum loan size for a second draw PPP loan is $2 million.
For a PPP loan to be forgiven, an entity is required to allocate at least 60% of the loan to payroll expenses. The remaining 40% can be allocated to eligible non-payroll expenses, which now include:
- Operations Expenditures: cloud computing services, business software, HR, and related expenses
- Property Damage Costs: civil unrest and public disturbances which occurred during 2020 (not covered by insurance)
- Supplier Costs: payments to suppliers which provide essential goods
- Worker Protection Expenses: payments incurred mitigating the risk of COVID-19 in the workplace, including personal protective equipment (PPE), drive-thru windows, sneeze guards, and outdoor dining enclosures.
Employee Retention Tax Credit
The relief funding also includes an expansion and extension of the Employee Retention Tax Credit (ERTC) created by the CARES Act through July 1, 2021. The ERTC, which is a refundable tax credit against wages, is expanded from 50% to 70% of wages up to $10,000 for two quarters with a maximum benefit of $14,000 per employee.
In addition, the CAA reduces the decline in gross receipts eligibility level from 50% to 20%. It is important to note that the wages cannot be double-counted for this credit and a PPP Loan.
Economic Injury Disaster Loan (EIDL)
EIDL applications will continue to be accepted through December 31, 2021. The purpose of this loan is to meet financial obligations and operating expenses that could have been met had the disaster not occurred. Financial obligation examples include continuation of health care benefits, rent, utilities, fixed debt payments, etc. Interest on loans is 2.75% for non-profits over 30 years, with payments deferred for 1 year.
The reimbursement provision for unemployment insurance is extended to March 14, 2021 for self-insured organizations. Under this provision, self-insured non-profits are entitled to reimbursement from the federal government for 50 percent of the amount they pay to reimburse the state for approved unemployment claims made against them.
Your Local One-Stop for NFP Consulting and Compliance
If you have any questions on the applicability of the new law to your organization, have a question about eligibility, or need help applying for a second draw PPP loan, please reach out to Barnes Dennig. We’re here to help.
Barnes Dennig is a CPA, consultant and tax firm with with offices in Indianapolis, Cincinnati, Dayton, and Northern Kentucky that provides you with in-depth experience helping you handle your day-to-day realities. Our cross-functional team can mitigate the effects of:
- Changing requirements for receiving and accounting for government funding and grants from foundations, which increase administrative costs and lower your reserves
- Loss of funding from major donors, which can be hard to recoup
- Fluctuating membership, which affects your cash flow and donor interest
Learn more about how we help not-for-profits solve their organizational challenges and fulfill their missions.