Covid-19 Relief Available for Qualifying Not-for-Profits
The not-for-profit sector, the nation’s third-largest industry, was especially hard hit by the Covid-19 pandemic. Fortunately, the federal government provided financial relief in the form of grants and loans to small businesses, including not-for-profits, under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and/or the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 as well as the newly passed American Rescue Act, which contains another round of pandemic relief funding for individuals and small businesses, including not-for-profits.
The Save Our Stages Act
Not-for-profits are not specifically targeted to receive funding, except for organizations that qualify for grants under the Save Our Stages Act. That Act is intended to help performance venues, independent movie theaters and cultural institutions that have mostly been shuttered since the start of the pandemic. Applicants who are eligible under this program can apply for grants of up to $10 million.
Economic Injury Disaster Loan (EIDL) grants of up to $10,000 are available through December 31, 2021. Not-for-profits may be eligible to receive grants of up to $10,000 if they (1) previously received an EIDL grant of less than $10,000, (2) are located in a low-income community or (3) previously applied but received no funds because the program ran out of funds.
Applications for EIDL grants will be accepted through December 31, 2021.
The Paycheck Protection Program (PPP) was designed to help small businesses, including not-for-profits, continue operating.
Not-for-profits may use the loan proceeds to pay payroll costs, mortgage interest, rent payments, utility payments, operating expenses, necessary supplies, expenses for personal protective equipment (PPE) or other eligible expenses.
In general, PPP loans will be forgiven (i.e., will not have to be paid back) if the proceeds are used for eligible expenses within 8 weeks and 24 weeks after the loan is made.
Applications for first and second draw loans will be accepted until March 31, 2021, although that date may be extended.
First Draw PPP Loans
Section 501(c)(3) and 501(c)(6) nonprofit organizations are eligible for first-draw Paycheck Protection Program (PPP) loans of up to $10 million if they (1) employ fewer than 500 employees (full- and part-time) who live in the United States, and (2) were in operation on February 15, 2020. Special rules apply to not-for-profits that began operations after that date.
In addition, any 501(c)(3), 501(c)(19) or tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of 500 employees or that meets the SBA industry size standard if more than 500 may apply.
Second Draw PPP Loans
Second-draw PPP loans of up to $2 million are available for not-for-profits that either used or will have used their first-draw loan by the time they receive their second-draw loan. Applicants may apply for second-draw loans so long as the amount of first- and second-draw loans combined do not exceed $10 million.
To qualify for second-draw loans, eligible not-for-profits must:
- have no more than 300 employees (note that this is different than the 500 employee-limit for first-draw loans)
- have experienced a decline in gross receipts of at least 25% in any quarter of 2020 compared to the same quarter in 2019
- certify that the loan is necessary to support ongoing operations
Not-for-profits need to keep in mind that two or more nonprofits under common control might be considered “affiliated,” which may cause them to exceed the 500- or 300-employee limit.
The American Rescue Plan Act of 2021, was signed into law on March 12, 2021. The provisions that are important to not-for-profits include:
- Certain not-for-profits with more than 500 employees are eligible for PPP loans.
- Qualified 501(c)(6) organizations are now eligible for PPP loans.
- Charitable deductions for 2021 are as follows:
- Individuals who do not itemize may deduct up to $300 in charitable gifts (up to $600 for married taxpayers filing jointly).
- Taxpayers who itemize remains may deduct up to 100% of adjusted gross income.
- Corporations may deduct up to 25% of taxable income.
- Corporations may deduct up to 25% of taxable income for food donations.
- The subsidy for costs incurred by employers, including nonprofits, that provide unemployment benefits on a reimbursable basis was (i) increased from 50% to 75% for weeks beginning after March 31 and (ii) extended to September 6, 2021.
The rules around these loans and grants are complicated, as are the tax implications. Not-for-profits should consult their accountant before applying for a loan or applying for loan forgiveness. Please feel to contact one of our not-for-profit team members for assistance.