COVID-19 Relief Bill: What Nonprofits Need to Know
December 29, 2020
On Sunday evening, after previously threatening a veto, the president signed into law a second COVID-19 relief package, consolidated with a bill to fund the government, passed by Congress last week. It is the first pandemic-related aid provided by Congress since many of the provisions of March’s CARES Act expired months ago. In addition to a new round of direct stimulus payments for qualifying individuals and families, the $900 billion legislation provides important benefits relevant to nonprofits, including extended unemployment benefits, an expanded employee retention credit, another round of Paycheck Protection Program (“PPP”) loans and Economic Injury Disaster Loan advance grants, and an extension of the charitable deductions allowed under the CARES Act for people who do not itemize their taxes.
Unemployment Measures Extended
The $600 monthly payments provided under the Federal Pandemic Unemployment compensation program in the CARES Act expired in July, leaving millions of unemployed workers with few options. Though less than the $600 provided by the CARES Act, the COVID relief bill provides workers receiving unemployment benefits an additional $300 per week through March 14, 2021. The bill also provides up to 11 additional weeks of eligibility for benefits under both the Pandemic Unemployment Assistance (PUA) and Pandemic Emergency Unemployment Compensation (PEUC) programs (also created under the CARES Act) for a maximum of 50 weeks of PUA benefits and 24 weeks of PEUC benefits.
FFCRA Tax Credit Extended
Somewhat surprisingly, the relief bill does not extend the requirement under the Families First Coronavirus Response Act (FFCRA) to require employers with fewer than 500 employees to provide sick and family leave benefits for COVID-19 related absences beyond December 31, 2020. Employers who voluntarily provide such benefits, however, will remain eligible for the FFCRA payroll tax credit, which reimburses employers for the costs of providing FFCRA leave, through March 31, 2021. Employees should also remain mindful of state and local laws that may require them to provide leave benefits for COVID-19 related absences.
Employee Retention Credit Expanded and Extended
Beginning January 1, 2021 and continuing through June 30, 2021, the relief bill increases the payroll tax credit provided for in the CARES Act from 50 percent to 70 percent of qualified wages, which is also increased from $10,000 per employee per year to $10,000 per employee per quarter. The bill also expands eligibility to employers with a 20 percent decline in gross receipts (previously 50 percent) from any quarter in the first half of 2021 compared with the same quarter in 2019, before the pandemic began. The CARES Act limited qualified wages of businesses with more than 100 full-time equivalent (FTE) employees to wages paid to employees who did not provide services. The relief bill increases that number to 500, so employers with fewer than 500 FTE employees may count all wages as qualified wages. Beginning in 2021, employers with fewer than 500 FTE employees may also request the employee retention credit in advance.
Paycheck Protection Program Reauthorized and Expanded
The relief bill provides more than $284.45 billion to the Small Business Association (“SBA”) for PPP loans, including funding for first and second time PPP borrowers, through March 31, 2021.
To be eligible for a second PPP loan, an applicant must exhaust the full amount of its previous PPP loan, must have no more than 300 employees, and must show a quarterly 25% gross revenue decline compared with the same quarter in 2019. The maximum amount available to borrowers is $2 million.
In addition to the expenses eligible for loan forgiveness under the CARES Act – payroll, rent, covered mortgage interest, and utilities – the relief bill expands the list of forgivable expenses to include certain operations expenses and worker protection expenses required to comply with public health guidelines. Certain property damage costs and supplier costs are eligible for forgiveness, as well. Full PPP loan forgiveness, however, is only available for borrowers that spend at least 60% of loan funds on payroll.
The relief bill provides a simplified forgiveness application process for loans of $150,000 or less, requiring only a one-page borrower certification describing the loan amount, the number of employees the borrower was able to retain because of the covered loan, and the estimated amount of the loan spent on payroll costs. The SBA has not yet released this simplified application.
Additionally, the relief bill repeals the requirement that PPP borrowers deduct the amount of any Economic Injury Disaster Loan (“EIDL”) advance from their PPP forgiveness amount.
Finally, the relief bill allows borrowers to take a tax deduction for business expenses paid with forgiven PPP loan funds.
Economic Injury Disaster Loan (EIDL) Advance Grants Reopened
The relief bill reopens the EIDL Advance grant to small businesses, including nonprofits, in low-income communities and creates a process for existing EIDL grantees that received less than the maximum grant of $10,000 to reapply for the difference.
Charitable Deduction Extended and Expanded for 2021
Under the CARES Act, individuals and joint filers taking the standard deduction on their 2020 income taxes may deduct up to $300 of cash donations to charity. The relief bill extends the deduction to 2021 and increases the deduction amount for joint filers to $600 of cash donations. The bill also increases the penalty for falsely inflating the amount of the charitable donation from 20% to 50% of the underpaid tax.
We will continue to monitor developments related to the COVID relief legislation and will provide necessary updates should Congress pass additional legislation or the administration provides additional guidance. If you have any questions about how this legislation impacts your nonprofit, please contact us for assistance.