The Implications of New Federal Laws for Nonprofits
Federal laws often have many components and they’re filled with complicated information that’s hard for a lot of people to understand. These are uncertain times, especially for charitable nonprofit organizations. During this difficult time, it’s important for nonprofits and everyone to understand the components of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). As important as this law is, charitable nonprofits and foundations may have trouble dissecting what’s meaningful for them out of the 880-page economic stimulus bill.
The CARES Act provides specific types of support for different sizes of charitable nonprofit and additional support for all nonprofits. The legislation also offers assistance for donors and contains various other helpful provisions. Overall, the intent of the CARES Act is to help nonprofits avoid layoffs and help them be sustainable during these socially and economically unstable times.
Small to Mid-Sized Nonprofits Get Support
The CARES Act creates a new program for nonprofit organizations that have up to 500 employees and that were in existence on or before March 1, 2020. The Emergency Small Business Loan program became part of the SBA 7(a) loan program under the CARES Act. One of the most important provisions of this program is that the loans are forgivable as long as eligible nonprofits (and for-profits) keep staff on the payroll between March 1st and June 30th.
The structure of these loans turns them into general operating support grants. Under this program, nonprofits can borrow up to $10 million and use it to meet payroll and associated costs, including premiums for health insurance, facility costs, and debt service.
Larger Entities Qualify for Low-Interest Loans
Large and mid-size entities that employ 500-10,000 employees may apply for a loan through a new industry Stabilization Fund. This program doesn’t include loan forgiveness, but it does offer a low interest rate of 2% or less. These loans don’t accrue interest and no payments will be due for the first six months. Something that’s important for nonprofits to note is that they must retain or rehire at least 90% of their staff at full compensation.
Support for Nonprofits of Any Size
The SBA offers an Economic Injury Disaster Loan (EIDL) that provides loans for up to $2 million with an interest rate of 2.75% for nonprofit organizations. These loans are intended to offset the temporary loss of funding they’re experiencing due to the COVID-19 pandemic. Nonprofits can use the loans to pay off debts, pay employees, pay monthly bills, and other bills that can’t be paid due to the impact of the crisis.
This program applies to any small business with less than 500 employees including sole proprietorships, independent contractors, self-employed workers, private nonprofit organizations, and veterans’ organizations that have been affected by COVID-19. The legislation also eliminates a credit requirement. Eligible nonprofits with 500 or fewer employees should get checks for $10,000 within three days and these loans won’t have to be repaid.
Benefits for Donors
In addition to helping nonprofit organizations survive and thrive during the COVID-19 crisis, the federal governments put in a provision that helps nonprofits help themselves. The CARES Act includes a one-time, above-the-line tax deduction for contributions of cash of no more than $300 made to certain charities that qualify. This gives your nonprofit the opportunity to encourage your tax-paying donors to take advantage of the tax benefit and donate more. The law even applies to those that take advantage of the standard deduction. This incentive applies to donations that individuals make in 2020 and that will be paid on tax claims for 2021. The exception is that this new deduction won’t apply to noncash gifts or to those that were contributed to donor-advised funds.
About 8% of individual taxpayers itemize their deductions. For these people, the law will suspend the normal limits on deductions for contributions for 2020, which is half of their adjusted gross income (AGI) or 60% for cash. The limit for corporations is normally 10% of AGI and that increases to 25% for 2020. Food donations are also increased from 15% to 25%.
Consider the Outlying Circumstances
There’s no question that all of this is good news, but to be fair, it’s important to recognize that this Act is a response to a sudden crisis. In the near future, each of these three programs will be accompanied by federal rules, regulations, and guidelines. The federal government will also have to design application forms and online application programs. The federal government will need to hire and train staff to implement these programs and some of the programs will require certain actions on behalf of their states.
As is it, the network of state associations of nonprofits has been working together with their members to better understand the challenges that come with existing programs. It’s important to keep these dialogues going with the new programs that are currently being offered.
Nonprofit Quarterly states that state association leaders are exchanging information between the states. Thus far, they’re seeing some challenges that are emerging and they continue to brainstorm ideas of potential solutions and troubleshooting.
As difficult as things currently are, the health and economic challenges will continue to challenge us for the foreseeable future. It will be necessary for the federal, state, and local governments to work closely together with advocacy groups in unity to share information, gain insight, and spread inspiration. Individuals and organizations will need to make a concerted effort for the ultimate benefit of all.
Nonprofit Quarterly encourages all nonprofit organizations to join the state association of nonprofits in their state. Your state nonprofit association will likely have the most up-to-date information and serve as a resource for your nonprofit organization to receive information and offer feedback on policy issues. This is a crucial time for nonprofits to join forces to make an important difference.
Grantmakers can also invest in the state association of nonprofits in their state to protect their grantees with the support of collective knowledge and collaboration. It’s vital that advocates for nonprofits make their voices heard on policy issues for the good of the nonprofits and the people and communities they serve.