The CARES Act: Charitable Giving Incentives
The CARES Act—the Coronavirus Aid, Relief, and Economic Security Act—is a $2.2 trillion stimulus plan that contains funding opportunities for charities and enhanced charitable giving incentives. The following information provides an overview of the key parts of the plan to help get charities started, but it is not intended to provide legal advice.
Enhanced Charitable Giving Incentives
- Temporary Universal Charitable Deduction—Taxpayers who do not itemize their deductions can take a one-time deduction of up to $300 for gifts made to charitable organizations. The provision is intended only for the year 2020; however, in the text of the bill, it states taxable years “beginning in 2020 …” and does not include a sunset date, thus it conceivably could extend beyond 2020. The deduction is ONLY for gifts of cash made in calendar year 2020 and does not cover other types of gifts or contributions made to donor-advised funds or private foundations.
- Suspends the 60 percent adjusted gross income limitation for individuals’ charitable contributions for the year 2020. In a typical year, individuals can only take a charitable deduction of up to 60 percent of their adjusted gross income, no matter how much they give. For 2020, there is no limit, making cash contributions fully deductible.
- Increases the cap on how much corporations may deduct for charitable gifts from 10 percent of taxable income to 25 percent. In addition, the limitation on deductions for food donations by corporations increases from 15 percent to 25 percent in 2020.
- Waives for 2020 the required minimum distributions from retirement plans, such as pensions and 457 plans. Any minimum distributions from retirements plans that would have been required in 2020 can be delayed until 2021. This change reduces the incentive for donors to make gifts from their individual retirement account (IRA)—the IRA Rollover Provision
Paycheck Protection Program (PPP)
- Expands the Small Business Administration’s loan program that authorizes banks and other financial institutions to issue loans to charities with 500 or fewer employees. Organizations that are not 501(c)(3) or 501(c)(19), such as trade associations, advocacy organizations, unions and social clubs, are not eligible to participate in the PPP.
- PPP loans can be used for such things as payroll costs, rent, utilities, interest payments on mortgage or other debt obligations, as well as to refinance current business debt or be used as working capital.
- The amount of a PPP loan is the lesser of $10 million or 2.5 times the average total monthly payroll costs from the one-year period prior to the date of application. The loan may be forgiven, but there is a process for a charity to submit for loan forgiveness.
- PPP loans are made on a first-come, first-served basis. Charities should submit applications as soon as possible to their current financial institution.
Click here for more information and to apply.
Economic Injury Disaster Loan (EIDL) Program & Emergency Grants
- EIDL loans are low-interest federal loans issued by the Small Business Administration to alleviate economic injury to small businesses, and have now been expanded to nonprofit organizations, including any entity exempt under section 501(c), including those that were excluded from the PPP program. Organizations must show that they have been negatively affected by the coronavirus, such as temporary loss of revenue, laying off employees or having to shut down.
- An EIDL is a working capital loan of up to $2 million that can be used to pay fixed debts, payroll, accounts payable, and other bills that could have been paid had the disaster not occurred. There is no loan forgiveness for an EIDL, though repayments can be deferred for one year after the loan date.
- The approval process can take as long as a month, so the CARES Act has created an emergency grant program for charities to receive up to $10,000 within three days of applying to the Small Business Administration. These grants do NOT have to be paid back.
Click here for more information and to apply for an emergency grant. Click here for more information and to apply for an EIDL.
Employee Retention Credit for Employers
- Through the Employee Retention Credit, charities can receive up to a $5,000 tax credit for each employee who is paid $10,000 or more in qualified wages from March 13, 2020 to Dec. 31, 2020. The organization applies the credit to any employment taxes paid in the next calendar quarter.
- All nonprofit organizations whose operations were fully or partially closed because of a shut-down order, or whose income has declined by more than 50 percent in one quarter of 2020 compared to the same quarter in 2019, are eligible. There are different rules for charities with more than 100 full-time employees. Charities have to report their qualified wages and credits on their quarterly employment tax returns.
- Charities that have received a PPP loan are NOT eligible for the Employee Retention Credit.
Delay of Certain Payroll Taxes
- Nonprofits may delay payments of payroll taxes (their share of the Social Security tax for which they are responsible) from March 27, 2020 to Dec. 31, 2020. Half of the tax must be repaid by Dec. 31, 2021, and the other half by Dec. 31, 2022. No interest or other financial penalty will be applied with the taxes are paid on that schedule.
- Organizations that defer their payroll tax payments are not eligible for PPP loans, but can receive an EIDL.