Late last night, the U.S. Senate approved the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The bill provides significant relief for nonprofits struggling through the COVID-19 crisis and for many of their employees and clients. Most notably, the bill: 

The U.S. House of Representatives hopes to pass the bill this week if it can overcome some procedural hurdles while most members work remotely. The next several newsletter items will highlight some key nonprofit provisions in the CARES Act.

One important provision in the CARES Act would provide funding for a new small business loan program (emergency SBA 7(a) loans) that would provide many nonprofits and small businesses up to $10 million to cover costs of payroll, operations, and debt service. These loans would be available to nonprofits with 500 or fewer employees that existed on March 1, 2020 and had paid employees. Loan funds could be used to make payroll and associated costs, including health insurance premiums, facilities costs, and debt service. Notably, employers that maintain employment between March 1 and June 30 would be eligible to have their loans forgiven, essentially turning the loan into a grant.

In a major victory for charitable nonprofits, the final bill does not include a provision in earlier drafts that would have disqualified nonprofits that are eligible for Medicaid payments. For most nonprofits, these SBA 7(a) loans will be a much better option than the emergency SBA loans that were approved for North Carolina small businesses and nonprofits last week. Those loans, which could cover up to $2 million to pay fixed debts, payroll, accounts payable, and other bills that cannot be paid because of the disaster’s impact, carry a 2.75% interest rate for nonprofits (lower than the 3.75% rate for small for-profit businesses), but are not forgivable. 

For larger nonprofits (between 500 and 10,000 employees) that are not eligible for SBA 7(a) loans, the industry stabilization provisions in the CARES Act provide for (non-forgivable) loans at interest rates of 2% or lower with no interest or repayments required in the first six months. Large nonprofits must retain at least 90% of their staff at their full compensation to qualify for these loans. 

For organizations that don’t receive 7(a) loans, the CARES Act provides a refundable payroll tax credit of up to $5,000 for each employee on the payroll when certain conditions are met. The credits are available to organizations that were operating at the beginning of 2020 and saw a drop in revenue of at least 50% in the first quarter compared to the first quarter of 2019. The availability of the credit would continue each quarter until the organization’s revenue exceeds 80% 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.

Three provisions in the CARES Act provide significant unemployment insurance (UI) relief to workers and to nonprofits, most notably:

After significant advocacy by the Center and other nonprofits over the past three years, the CARES Act includes a temporary, above-the-line deduction for total charitable contributions (also known as a universal or non-itemizer charitable deduction), which would be capped at $300. The incentive applies to contributions made in 2020 and would be claimed on tax forms next year. While the cap is lower than most nonprofits would prefer, it will nonetheless help encourage many more Americans to make charitable contributions this year at a time when nonprofits have never had greater revenue challenges.

The bill also lifts the existing cap on annual contributions for those who itemize, raising it from 60% of adjusted gross income to 100% (meaning high-income taxpayers could receive a full tax deduction if they donate all of their income to nonprofits). For corporations, the bill raises the annual limit from 10% to 25%. Food donations from corporations would be available up to 25%, up from the current 15% cap.

To help preserve jobs and businesses, the CARES Act also provides direct appropriations for several programs that directly support nonprofits. Some of these appropriations include: 

This week, the NC House of Representatives began its process of providing support to individuals, businesses, and nonprofits affected by the COVID-19 pandemic. The House has formed four working groups on health care, economic support, education, and continuity of state operations to develop policy solutions to provide immediate and long-term relief to North Carolinians. All of the working groups have bipartisan chairs. The Economic Support working group met for the first time yesterday, and two other working groups are scheduled to meet today as remote meetings. If your nonprofit has suggestions for ways the state can help your organization, your community, or those you serve, please share this input with these working groups through the House’s online comments portal. We encourage you to share your input with the Center so we can help with your advocacy.

The Center continues to work with the Governor’s Office and legislative leaders to ensure that the state includes the needs of nonprofits in its COVID-19 relief efforts. Specifically, the Center has asked the COVID-19 Economic Support working group to help nonprofits in six important ways:

The Center continues to refine and expand these suggestions for legislators and the Governor as we get additional information about the specific needs of nonprofits and those they serve.

Last week, President Donald Trump signed into law the Families First Coronavirus Response Act ( H.R. 6201). Among other things, the law provides significant refundable emergency paid sick leave and family and medical leave benefits, which should provide some immediate help to nonprofits and their employees. Details include:

Lisa Gordon Stella, a Durham attorney who is part of the Center’s pro bono referral network, has provided an extremely useful FAQs with answers to dozens of questions nonprofits have been asking about these new paid sick leave and emergency family medical leave provisions.