Application of CARES Act to Tax-Exempt Organizations

The CARES Act provides enhanced financial support for businesses and other eligible entities suffering from the continuing COVID-19 pandemic. While much of the CARES Act provides relief to for-profit businesses (see our previous post), there are specific provisions for nonprofits and tax-exempt organizations (collectively “TEOs”) which help support the operations and fundraising needs of TEOs during the COVID-19 pandemic and recovery.

Operations support for TEOs

Small Business Loan Program. The CARES Act created a new business loan program known as the “Paycheck Protection Program.” In addition to certain other businesses, the Paycheck Protection Program is available to TEOs described in either 501(c)(3) (public charities) or 501(c)(19) (veterans organizations). TEOs falling within these categories are eligible for loans under the Paycheck Protection Program, subject to other eligibility criteria, while TEOs not falling within these categories are excluded from the benefits of the Paycheck Protection Program. TEOs interested in the Paycheck Protection Program should see our previous posts on this subject.

Economic Injury Disaster Loans. The CARES Act specifically includes the COVID-19 pandemic as a disaster for which most TEOs could obtain disaster assistance loans under the SBA’s 7(b)(2) program. Qualifying small TEOs may receive a $10,000 advance if the TEO’s number of employees or annual receipts qualify. The advance under this program is not required to be repaid.

Emergency Relief and Taxpayer Protections. The CARES Act allocates $500 billion for loans, loan guarantees, and other investments to eligible businesses including TEOs with between 500 and 10,000 employees. The emergency relief loans are subject to a favorable interest rate (no higher than 2% per annum) and no principal or interest is due during the first six months.

Employee Retention Credit and Delay of Payroll Taxes. TEOs are eligible for the dollar-for-dollar employee retention credit against payroll tax liability. The amount of the credit is equal to 50% of the first $10,000 in wages per employee. TEOs who qualify may delay the employer’s share of payroll taxes through the end of 2020. The delayed payroll taxes are repaid in two installments, with the first due by December 31, 2021 and the second due by December 31, 2022.

Fundraising support for TEOs

In addition, as we previously discussed, the CARES Act allows a partial above the line deduction of up to $300 of cash contributions to charitable organizations and churches, whether the taxpayer itemizes deductions or not, suspends the 50% of adjusted gross income limitation for charitable deductions by individuals, and increases the 10% limitation for corporations to 25% of taxable income and increases the limitation on deductions for contributions of food inventory from 15 % to 25%.

Attorney Susan B. Hecker contributed to this post.