[March 27, 2020] The third prong of the Congressional response to the COVID-19 pandemic – the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (S. 747) – is now before the House of Representatives, having passed the Senate on Wednesday. The House is expected to approve it today with overwhelming support; voting is expected to begin shortly.  It could be signed at the White House and in effect before the end of this weekend. [Update: 10:33 am PDT: The House approved the bill; it took one minute by voice vote.] [Update: 1:30 pm PDT: The CARES Act has been signed into law.]

Thanks in part due to the diligent efforts of many legislators as well as significant input from nonprofit sector leaders, the final bill – over nine hundred pages long – is much bigger (and better for workers, individuals, small businesses, and nonprofits) than the original Senate proposal. 

Our summary here is based on news reports and analyses, including most particularly the Initial Analysis of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (S. 748) by the National Council of Nonprofits. These analyses are preliminary, of course, based on a first look at the complicated text and without the benefit of what will be regulations and rules enacted in the next days and weeks. 

     Key Aid for Nonprofits

The key help for nonprofits – available generally across the sector – includes: emergency loans, expansion of Economic Injury Disaster Loans, expansion of charitable giving incentives, Employee Retention Payroll Tax Credit, and the Industry Stabilization Fund. 

    Emergency Loans  

The funding for emergency loans to small businesses expressly includes “charitable nonprofits” with 500 or fewer employees (counting each individual – full time or part time and not FTEs). Larger nonprofits may be covered under the Industry Stabilization Fund; see below.

The final bill omits a provision in earlier drafts that would have disqualified nonprofits eligible for payments under Medicaid. 

  • Amount: Up to $10 million
  • Use: Can be used to make payroll and associated costs (including health insurance premiums); facilities cost (including rent and mortgage, utilities); and debt service.
  • Forgiveness: Employers that maintain employment between March 1 and June 30 are eligible to have loans forgiven, “essentially turning the loan into a grant.” [It’s unclear at this point how this will affect nonprofits that laid off or furloughed workers already.]

  Economic Injury Disaster Loans (EIDL)

The Small Business Administration has a permanent program for loan assistance in disasters for economic injury. Earlier this month, the necessary declarations and adjustments were made to include COVID-19 in this program. See our recent post: The Small Business Administration Disaster Loan Guidance and Resources (March 20, 2020).  The CARES Act (a) eliminates creditworthiness requirements and funds the program with an additional $10 billion “so that eligible nonprofits and other applicants can get checks for $10,000 within three days.”

   Industry Stabilization Fund

The $425-billion loan and loan-guarantee fund “for eligible business” is “expected” to include large charitable nonprofits [between 500 and 10,000 employees who retain at least 90% of their staff at full compensation] but, according to the National Council of Nonprofits analysis, that is “unclear” at this point. This program does not include loan forgiveness, but recipients will pay an interest rate of no higher than two percent and interest and principal repayments will be delayed for six months. 

  Employee Retention Payroll Tax Credit

For eligible employers, there is a refundable payroll tax credit of up to $5,000 for each employee on an employer’s payroll: 

  • Entity had to be “an ongoing concern at the beginning of 2020 and had seen a drop in revenue of at least 50 percent in the first quarter compared to the first quarter of 2019.” 
  • Will 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 the decline in revenues.”
  • Employers receiving the SBA Economic Injury Disaster Loans are not eligible. 

  Charitable Deduction Changes 

There are provisions in the CARES Act that make positive (though temporary) changes to boost incentives for charitable giving. Senator James Lankford (R-OK), who has been an important legislative ally of the nonprofit community – has sponsored a separate bill that would include a bigger expansion of the charitable deduction.  

There is a new above-the-line deduction that will apply to all taxpayers (including non-itemizers) for total charitable contributions of up to $300. It will apply to 2020 contributions and can be claimed on tax forms filed next April.

It also lifts the current cap on annual charitable contribution deductions for itemizers from 60 percent to 100 percent. 

For corporations, the annual charitable contribution limit goes up to 25 percent from 10 percent. Companies making food donations would also have their cap raised to 25 percent from 15 percent.  

     Other Provisions Of Interest to Nonprofits

The eagerly awaited direct payments to individuals and families earning under certain income levels should bring much-needed financial relief to many people associated with nonprofits within a few weeks.

The CARES Act also includes additional funding for certain sectors including: 

  • $150 billion for a state, tribal, and local Coronavirus Relief fund
  • $130 billion for hospitals
  • $30 billion for education
  • $25 billion for transit systems

This legislation also expands federal help for unemployment insurance, with coverage for workers who are furloughed, gig workers and freelancers. Payments will go up by $600 per week for four months in addition to what state unemployment programs pay.

There are also amendments to the paid leave mandates that were enacted on March 19, 2020 under the second emergency relief bill, the Families First Coronavirus Response Act. The new Act “lowers the amounts that employers must pay for paid sick and family leave to the amounts covered by the refundable payroll tax credit – i.e., $511 per day for employee sick leave or $200 per day for family leave.”

     Conclusion

It’s important to note that the CARES Act – along with the first two emergency relief laws – are compromise bills. According to Tim Delaney, president and CEO of the National Council of Nonprofits, “There is much to celebrate in this deal, but still a lot of advocacy needed.” The nonprofit sector wants more help for charities including a $60 billion aid package specifically for nonprofits. 

House Speaker Nancy Pelosi says her caucus is already working on additional legislation that should be presented and considered over the next weeks and months.