A. There is financial relief available for many organizations under various federal stimulus bills, including the CARES Act. The CARES Act includes several programs for employers intended to help keep employees on payroll instead of laying them off. In addition to helping employees and their families, maintaining the employee population provides additional benefits, including not having to locate, screen and train new employees upon re-opening, which will accelerate an organization’s ability to restart operations.
The most publicized of these programs is the Payroll Protection Program (PPP) that provides loans to certain employers through the Small Business Association. In addition to providing a very favorable two-year loan at 1% interest, there is an opportunity for the loan to be forgiven if the employer maintains its employee headcount and wage payments at pre-COVID-19 levels.
However, eligibility for the PPP and its forgiveness requirements is dependent on many variables. These conditions need to be reviewed thoroughly to determine if an employer organization qualifies. Additionally, the Employee Retention Credit (a 50% credit on qualifying wages paid to employees on March 13 through December 31, 2020) is available for employers who do not take advantage of the PPP and either:
- Fully or partially suspend operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel or group meetings (for commercial, social, religious or other purposes) due to COVID-19; or
- Experience a significant decline in gross receipts during the calendar quarter
All employers are eligible to defer their social security tax liability due March 27 through the earlier of PPP loan forgiveness, if applicable, or December 31, 2020.
All 501(c)(3) organizations have the option of paying unemployment insurance tax or self-insuring. The CARES Act reimburses 501(c)(3) organizations for half of their costs of unemployment benefits provided to laid-off employees. For charities that are tax-exempt from unemployment laws, the organizations are not eligible to receive unemployment benefits. However, organizations can receive this benefit if they voluntarily choose to self-insure.
Despite the many financial relief options available in federal stimulus measures, eligibility is often dependent on size and other factors, and many benefits are mutually exclusive or have other tax implications. Given the level of complexity in applying these provisions, it is critical organizations consult with tax professionals to maximize potential savings. Organizations should also check with their applicable state taxing authorities for relief and updates on how states are coordinating with the CARES Act’s provisions. For information on how nonprofits can benefit from the CARES Act, read our recent blog post.
Many nonprofits may also be able to leverage FEMA funds to offset costs associated with protecting the public and preventing the spread of COVID-19. For more on the FEMA Public Assistance Program, read our recent blog.
In addition to checking options for government assistance, nonprofits should consider other cost reduction strategies, including:
- Negotiating concessions on any upcoming payments to vendors
- Engaging with lenders to confirm existing lines of credit, negotiate terms of existing loans or seek additional funds for relief
- Contacting landlords to seek a grace period on rent
It is also important to carefully review insurance coverage to see if premiums can be reduced, or if coverage applies to current losses due to operational interruption.
Regardless of the type of relief an organization pursues, it’s critical to maintain contemporaneous documentation and carefully track any losses and expenses related to the pandemic.