Earlier this year, the Center sent a candidate questionnaire on nonprofit issues to all North Carolina candidates for Congress and the NC General Assembly asking about their personal experience with nonprofits, their priorities if elected, and which nonprofit sector policy issues they would most enthusiastically support. The Center is pleased that more than a quarter of candidates on the ballot this fall have completed the questionnaire. 

It’s important for you to see what the candidates on your ballot said about nonprofits. Here are three things you can do today:

1. Take a few minutes to check out the interactive 100-county map of candidate responses to learn more about the candidates on your ballot. 
2. Share these responses (by sharing the link to the map) with your staff, board, volunteers, and people you serve. 
3. If you see candidates in your county who haven’t responded, reach out and ask them to complete the questionnaire. We’ve made it easy with this template you can customize and send to candidates who haven’t yet replied – find their names and email addresses with the interactive county map. The Center will continue to update responses through Election Day in November.

A special thank you to all the nonprofits that have already reached out to their local candidates. As the National Council of Nonprofits noted in this recent article, your participation has been critical to the success of this project!

Last month, the NC Department of Revenue (DOR) announced that student loan forgiveness is taxable income for the purposes of state income taxes. This means that borrowers will need to pay state income tax on the amount of their student loans that are forgiven. On Tuesday, a key legislative leader told reporters that he does not anticipate that the NC General Assembly will change this law. This week, the Center carefully reviewed the federal and state tax codes and determined that – notwithstanding the existing state law and the recent DOR announcement – nonprofit employees who have their student loans forgiven through PSLF will not be liable for paying federal or state income tax on their loan forgiveness.

Even though the current state law appears not to apply to PSLF, the Center supports a change in the law since the current tax on forgiven student loans will result in a tax increase for nonprofit employees – and for many people who receive services from nonprofits – who receive debt cancellation through the new federal program or through an income-based repayment plan.

If you are interested in additional information about the applicable federal and state laws and the Center’s analysis, we are providing a few more details in the next two paragraphs. If excessive legalese makes you squeamish, feel free to skip past these two paragraphs. 

As background, a provision of the 2021 American Rescue Act Plan, which has been codified as Section 108(f)(5) of the Internal Revenue Code, excludes student loan forgiveness from income for federal tax purposes. This means that borrowers – including nonprofit employees – who receive loan forgiveness through the certain income-based repayment plans or the new U.S. Department of Education student debt cancellation program will not need to pay federal income tax on the amount of their student loans that are forgiven. The federal income tax exclusion applies to loan forgiveness between 2021 and 2025. Last year, the NC General Assembly chose to “decouple’ from this federal income tax exclusion, meaning borrowers who receive loan forgiveness need to add the amount of loans that were forgiven to their taxable income for the purpose of state income taxes. Unless the NC General Assembly changes this law, North Carolina will be one of only seven states to tax borrowers’ student loan forgiveness.

The Center’s analysis, however, found that borrowers who have their student loan forgiven under PSLF can have the amounts of their PSLF loan forgiveness excluded from income for the purpose of federal income taxes under a different subsection of the Internal Revenue Code (Section 108(f)(1)). This subsection excludes from gross income “any amount which (but for this subsection) would be includible in gross income by reason of the discharge (in whole or in part) of any student loan if such discharge was pursuant to a provision of such loan under which all or part of the indebtedness of the individual would be discharged if the individual worked for a certain period of time in certain professions for any of a broad class of employers.” Because the NC General Assembly has not decoupled the state tax code from IRC Section 108(f)(1), the federal income exclusion for certain student loan forgiveness under IRC Section 108(f)(1) also applies to state income tax. Translation: If your student loan was forgiven through PSLF, you shouldn’t have to pay federal or state income tax on the amount of your loan forgiveness.

The Center recently learned that some nonprofits have been deemed ineligible for the State Employees Combined Campaign (SECC) because they don’t meet an “efficiency ratio” in the state regulation governing the SECC. The Center is concerned that this rule may limit the ability for some nonprofits to raise funds from state employees through the SECC. 

As background, the SECC is a workplace giving campaign that enables state employees and retirees to make contributions to charitable nonprofits that have been approved to participate in the program. State employees can use payroll deductions to make charitable contributions through the SECC. Among other things, nonprofits participating in the campaign must demonstrate that their total fundraising and administrative expenses are not more than 25% of their total revenue. A nonprofit must calculate its fundraising and administrative expenses ratio based on the totals on its most recent IRS Form 990 for management and general expenses and fundraising expenses (for the numerator of the calculation) and total revenue (for the denominator of the calculation). The Center has several concerns about this requirement:

1. The 25% cap on the fundraising and administrative expenses ratio may be impossible for certain types of nonprofits to meet. Nonprofits that rely heavily on volunteer services wouldn’t be able to include the value of these volunteers in their calculation of their total revenue. Likewise, a nonprofit might spend a significant percentage of its total revenue on administrative and fundraising expenses (potentially much more than the 25% cap in the regulation) if it had its facilities damaged or destroyed due to a natural disaster, if it was undertaking a major capital campaign, or if it had to temporarily cease in-person programs and services during a pandemic.  
2. Some of the specific components of the calculation are problematic. The terms “administrative expense” and “fundraising expense” aren’t clearly defined in the regulations, and different nonprofits may have very different ways of classifying their revenue in the lines on the 990 that would be used to make the calculation. Also, nonprofit “efficiency ratios” typically use total expenditures rather than total revenue as the denominator.
3. The use of this type of “efficiency ratio”, while sometimes helpful in comparing the programs and services of similar nonprofits, can be misleading when comparing nonprofits that provide very different types of programs and services. Some types of nonprofits have inherently higher fundraising and administrative expenses than others, but that doesn’t make them less effective or less deserving of receiving contributions. 

The Center is exploring the possibility of advocating for changes to the rule. As we begin working on this issue, it would be helpful to get feedback from nonprofits about whether they have concerns about the use of the administrative and fundraising expenses ratio as a prerequisite for participation in the SECC. Let us know if your nonprofit shares these concerns and if you have examples of types of nonprofits that might have difficulty of meeting this ratio in some years.

Earlier this year, both the NC Senate and NC House of Representatives approved legislation to expand Medicaid coverage to adults with incomes up to 133% of the federal poverty level. Unfortunately, leaders in the two chambers have been unable to agree on final details of the legislation. Most significantly, Senate leaders want to include changes to the state’s Certificate of Need (CON) laws that limit the ability of health care providers to be able to offer a variety of health-related services. Hospitals and health systems – many of which are 501(c)(3) nonprofits – have been concerned about the CON changes since these could significantly reduce their revenue, potentially causing some hospitals to close. 

Last Friday, the NC Health Care Association (NCHA) sent legislative leaders a letter urging lawmakers to pass Medicaid expansion and proposing CON changes that could be a part of the legislation. This week, the leader of the NC Senate rejected NCHA’s compromise, leaving lawmakers at an impasse over Medicaid expansion legislation.

As we explained in a Care4Carolina blog post this summer, the Center strongly supports Medicaid expansion because it would support the work of charitable nonprofits in three ways:

1. Complementing the work of many nonprofits that provide services to North Carolinians who don’t currently have adequate health coverage;
2. Providing health coverage for some employees of nonprofits that don’t offer group health plans and whose salaries leave them in the health care coverage gap; and 
3. Providing payment for some types of Medicaid-eligible services that nonprofits currently provide to clients for free.

The Center continues to work with our partners to advocate for legislators to come to an agreement and pass Medicaid expansion this year. We will let you know when there is a need for your nonprofit to take action.

Nonprofit employees have a little more than a month left to take advantage of the temporary Public Service Loan Forgiveness (PSLF) waiver. This temporary waiver makes it possible for many nonprofit workers to receive credit for past periods of repayment that would otherwise not qualify for the PSLF program, thereby reducing or potentially eliminating student loan debt.  

The PSLF program forgives the balance of most federal student loans after ten years working for charitable nonprofits and governments. Many nonprofit workers with student debt may not be aware of the benefits of the PSLF program or realize that the temporary waiver can provide immediate forgiveness for some borrowers. So far, borrowers from North Carolina have been approved for more than $246 million in student loan forgiveness under the waiver.

Here are three things your nonprofit can (and should) do today to help ensure that your eligible employees take advantage of the temporary PSLF wavier:

1. Remind your employees about the temporary PSLF waiver and the October 31 deadline in any upcoming staff meetings or employee communications. Share the U.S. Department of Education’s free resources about the waiver (note that the website has had some delays recently due to the high level of interest in the waiver).
2. Make it easier for your employees to apply for the waiver by ensuring they know your nonprofit’s employer identification number (EIN) and the contact information for the person on your staff to direct PSLF forms and related questions.
3. Encourage your employees to check out The Institute of Student Loan Advisors (TISLA), a nonprofit with free information about PSLF, how you might qualify, and all things student loans.

A new law (H.B. 791) that took effect on July 15 addresses many of the issues that nonprofits have experienced with their grants and contracts with the NC Department of Health and Human Services (DHHS). Specifically, the new law makes four reforms to DHHS grants and contracts with nonprofits:

1. It establishes a de minimis 10% indirect cost rate for nonprofit grants/contracts with DHHS, regardless of whether funding initiates from federal or state funds. Many nonprofits currently have contracts that provide for much lower indirect cost rates or that make no allowance for nonprofits’ indirect costs.
2. It requires DHHS to provide most nonprofits with multi-year contracts rather than one-year contracts that are renegotiated every year. This change should reduce much of the red tape and contracting delays that nonprofits experience during the contract renewal process.
3. It provides three-month contract extensions for most nonprofits to ensure continuity of services – and of payments to nonprofits – after the end of nonprofits’ multi-year contracts with DHHS. This change is intended to help prevent many of nonprofits’ payment delays that have resulted from understaffing at DHHS.
4. It requires legislative staff to provide nonprofit contact information for nonprofits receiving directed grants in the state budget to DHHS in a timely manner. DHHS has identified the lack of clear communication about nonprofit contact information as a cause of some of its contract and payment delays.

This new law is based on input from dozens of nonprofits that have shared their stories about late payments, late contracts, underpayment for indirect costs, and red tape in their grants and contracts with DHHS. Now that the law has been in effect for two months, the Center is trying to gauge whether it is having its intended effect of improving the contracting process for nonprofits that work with DHHS. If your nonprofit has a grant or contract with DHHS, let us know whether the law has had an impact on your organization’s indirect cost rate, contract extension, or timeliness of payments. If the law is not having its intended impact, the Center plans to work with DHHS on clarifying guidance and, if necessary, with lawmakers on additional changes to contracting laws in 2023.

One of the easiest ways nonprofits can help promote elections is by giving your staff paid time off to vote during Early Voting or on Election Day. To help ensure that nonprofits show leadership when it comes to empowering the millions who work daily to create a more equitable society, Nonprofit VOTE, the National Council of Nonprofits, and several other national organizations launched the Nonprofit Staff Vote campaign.

The Center has proudly signed on to the Nonprofit Staff Vote campaign, and we encourage your nonprofit to join also. To model best practices, the Center is sharing its policy (below) allowing staff to take time off to vote or to volunteer as nonpartisan poll workers. Feel free to borrow and adapt this language to fit into your organization’s personnel policies. And let us know if your nonprofit is also giving staff time off to vote in this year’s election.

“Voting and Election Day. The Center encourages all employees who are eligible to vote to participate fully in the electoral process. Any Center employee may take paid time off work on Election Day or during the Early Voting period to vote in any primary, general, or run-off election. Employees should notify their supervisors of the time they plan to take off for voting.

“Center employees also may take up to one day per year of paid time off to volunteer in a nonpartisan role as a poll worker on Election Day or during the Early Voting period. Employees must get prior written approval of their supervisors (which shall not unreasonably be denied) before taking this paid time off. Employees volunteering for political parties or campaigns on Election Day or during the Early Voting period may not be paid for their time engaging in partisan political activities, but they may take annual leave for any time spent volunteering for candidates or political parties.

“Paid time off for voting and nonpartisan election volunteer work is in addition to annual leave, sick leave, and personal leave that employees have accrued. Employees are not required to use annual leave, sick leave, or personal leave when they take paid time off to vote or to volunteer as a nonpartisan poll worker pursuant to this policy.”

The NC State Board of Elections (NCSBE) has begun mailing out absentee ballots for the November 8 election to thousands of North Carolinians who have already requested to vote by mail. Now is a great time for your nonprofit to remind your staff, volunteers, and people you serve that they should request an absentee ballot soon if they plan to vote by mail this fall.

Voters can request absentee ballots either through the NCSBE online absentee ballot portal or by completing a print form (available in English and Spanish), and mail it or hand deliver it to their county board of elections. The deadline to request an absentee ballot is November 1, but it is better to request it sooner so there is sufficient time to receive it by mail and submit it. Voters who use absentee ballots can now track the status of their ballots online.

To help your nonprofit prepare for this fall’s general election, the Center is offering a webinar for nonprofits on the 2022 election on October 14 from 10-11 a.m. The free webinar will include:

• A quick overview of what’s at stake in the 2022 election and why it matters to nonprofits.
• Answers to common nonprofit questions about election-related activities that nonprofits – and their staff and board members – can and can’t do.
• How to find and share basic information about the 2022 election.
• How to learn more about candidates’ positions on issues that are important to your nonprofit’s work.
• Five nonpartisan ways your nonprofit can help your staff, board, volunteers, and clients be well-informed voters this year.

Register today! Then check out the Center’s resources on ways nonprofits can strengthen their programs and service by empowering voters (while remaining nonpartisan, of course) and five simple ways nonprofits can help their clients overcome obstacles to voting.

National polling data released this week shows that voters across the country broadly support several federal policy priorities of charitable nonprofits. Among other things, the poll found that:

• 85% of voters support permanent reinstatement of the universal charitable deduction on federal taxes;
• More than three-fourths of voters support significantly expanding the threshold of the universal charitable deduction; and
• 84% of voters agree that the government could provide better solutions for the problems facing local communities if nonprofits had an official seat at the table.

This data may be helpful to nonprofits as we collectively advocate for our elected officials to pass policy solutions that will strengthen the work of nonprofits in our communities.

Congress will need to pass federal funding legislation by next Friday, September 30 to avert a partial shutdown of the federal government. Congressional leaders are working with the White House on details of a continuing resolution, which would be a short-term funding measure to prevent a government shutdown until Congress passes a full budget for the federal fiscal year that begins on October 1. Government shutdowns can harm nonprofits and the communities they serve by causing delays in nonprofits’ payments from federal agencies and creating disruption in the delivery of federal benefits. The U.S. Senate and U.S. House of Representatives will likely vote on a continuing resolution next week.

The Center provides Nonprofit Policy Update each week as a benefit to its nonprofit members. However, to help all North Carolina nonprofits respond to the COVID-19 pandemic, we're temporarily providing this newsletter to non-member nonprofits. Don’t miss out – become a member to ensure you continue receiving these updates along with many other valuable benefits.