CARES Act: Impact on charitable giving and nonprofits

 

UPDATE ON APRIL 24, 2020:

The CARES Act has been extended, providing a total of $484 billion in new spending, including $310 billion in new money for the Paycheck Protection Program (PPP). The PPP provides forgivable loans to small businesses and nonprofits that keep their employees on the payroll.

The first round of funding, made available on April 3, highlighted some of the barriers facing nonprofits in accessing this capital. A second round of funding is anticipated within days and Council of Michigan Foundations (CMF), in partnership with the Michigan Nonprofit Association (MNA), wants to ensure nonprofits are able to access this critical support.

NONPROFIT PARTNERS: Please consider applying for the PPP and submit your application today if you haven't done so already. We also encourage you to explore these resources:

MNA is collecting feedback on the nonprofit experience in the PPP process. Please take three minutes to complete this survey from MNA and share it with your networks.

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UPDATE ON APRIL 1, 2020:

The $2 trillion stimulus bill called Coronavirus Aid, Relief and Economic Security (CARES) Act was signed in to law on Friday, March 27. CARES Act provides a variety of provisions intended to grant economic relief.

More specifically, it expands the charitable deduction to all taxpayers for a year, makes nonprofits eligible for federal loans that could be largely forgiven, and boosts tax incentives for corporate giving, according to nonprofit analysts.

CHARITABLE TAX DEDUCTION
Prior to passage of the CARES Act, only people who itemize their taxes could claim charitable deductions. The stimulus bill will allow non-itemizers to deduct up to $300 in cash giving for the 2020 tax year, according to an analysis of the legislation by the National Council of Nonprofits.

For those who itemize, the bill lifts the cap on annual giving from 60 percent of adjusted gross income to 100 percent. For corporate charitable giving, the bill raises the annual limit from 10 percent to 25 percent of taxable income. The cap on deductibility of food donations from corporations increases to 25 percent of taxable income, up from the current 15 percent cap.

RETIREMENT PLAN EARLY WITHDRAWAL
The retirement plan early withdrawal penalty will not apply to distributions up to $100,000 for coronavirus-related purposes made on or after January 1, 2020. This penalty relief provision applies to anyone who contracted, or whose spouse or dependent contracted, the virus or lost work due to the business shutdowns.

Withdrawals would be taxed (unless you already paid taxes or can take that particular money tax-free) over the next three years. The legislation also allows you to replace the funds over the next three years, even if that puts you over the annual contribution limit for your account. This would help you catch back up to where you were before faster, if you are able.

PROVISIONS FOR NONPROFITS
Other provisions of the bill affecting charities, according to the National Council of Nonprofits and other sources:
  • Nonprofits with 500 or fewer employees (counting all full-time and part-time employees equally) will be eligible for Small Business Administration (SBA) loans of up to $10 million (learn more about this provision on National Council of Nonprofits "Loans Available for Nonprofits in the CARES Act" chart). Nonprofits are also eligible for expedited loans of up to $1 million. The money would have to be used for payroll, including paid leave, as well as health-insurance premiums, facilities costs, and debt service. 
  • Nonprofits that keep their employees on the payroll from February 15 to June 30 could have their loans forgiven, turning the loan into a grant. Learn more about this provision on National Council of Nonprofits "Loans Available for Nonprofits in the CARES Act" chart.
  • Previously, nonprofits couldn’t access these loans if they were eligible for Medicaid payments. That limitation was removed from the final version of the bill. 
  • The bill creates 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 drop 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 credits.
  • The bill appropriates an additional $10 billion to another SBA program, Economic Injury Disaster Loans, and waives a creditworthiness requirements for all applicants, including nonprofits. Those eligible will be able to get checks for $10,000 within three days.
  • Nonprofits that self-fund unemployment benefits could get reimbursed for up to half the costs (or 50 percent) of benefits provided to their laid-off employees.
To learn more about provisions for businesses, visit Southwest Michigan First's COVID-19 business resource page.
 
Many of these provisions have additional requirements and limitations. Stay tuned as more guidance is provided by the IRS and U.S. Department of the Treasury on executing these provisions. At the mean time check out the links below to learn more.

Links to resources to learn more about CARES Act:

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