During Nonprofit Giving Season, we’ll review the impact the pandemic has had on philanthropy and how support put in place by CARES Act could impact your nonprofit.
CARES (which stands for Coronavirus Aid, Relief, and Economic Security), passed in early Spring and has six key areas that support nonprofits during the economic crisis caused by COVID-19.
- Employee Retention Tax Credit: Provides a refundable payroll tax credit up to $5,000 per employee; your nonprofit is eligible for this if you can show your profits/income declined by at least 50% (compared to the previous year).
- Unemployment Benefit Reimbursement: Consult with your accountant regarding your organization’s unique eligibility, however, at large the CARES act allows nonprofits to be reimbursed for half of any unemployment benefits costs. (Read about why nonprofits, even small and/or developing ones, need accountants here).
- Paycheck Protection Program: Likely the most talked-about aspect of CARES for nonprofits is the Paycheck Protection Program (PPP) managed by the US Small Business Administration (SBA). Nonprofits, with less than 500 employees, can borrow 2.5 times their monthly payroll expenses (up to $10 million). While PPP is technically a loan (since most small businesses are eligible to apply) as a 501c3 nonprofit, you're eligible for forgiveness of the loan, as long as you can show a record of continued employment of the staff covered during the loan period (24-weeks). You must apply through an SBA 7(a) lender. Funds can be used to offset payroll costs, rent, and utility expenses and (if applicable) any interest on a mortgage or outstanding debt. There are limits, such as a cap at $100,000 for an individual's salary, and the funds must be justifiable/vital to support the organization's livelihood. Read in-depth on PPP here.
- Economic Stabilization Fund: Less often spoken about is this aspect of CARES. Nonprofits that do not qualify for PPP coverage, or those who don’t need salaries covered, can apply for a low-interest loan (2.75% for approved nonprofits) with a $2 million loan maximum. Unlike PPP, the Economic Stabilization Fund does not have a limit on the number of employees and has a slightly broader definition for use of funds. The funds must be used to retain employees as well as to support compensation and benefits. However, a nonprofit cannot receive both PPP and Economic Stabilization Fund loans.
- Emergency Economic Injury Disaster (EIDL) Grants: These grants (provided by the SBA) are dispensed from the same funding streams as the previously mentioned Economic Stabilization Fund and PPP, however, they are micro ($10,000) Advances distributed within 3 days of an approved application. Currently, funds are depleted, but EIDL loan applications (from the Economic Stabilization Fund) will still be processed even though the Advance is no longer available.
- Charitable Giving Incentives: Prior to the pandemic, deductions for individual charitable contributions were limited to no more than 60% of your adjusted gross income. Now, there is no 2020 limit on charitable contributions, for individuals and corporate giving limitations have been raised from 10% to 25%. This essentially means there is no cap on what an individual can give (all donations are fully tax-deductible) and corporations can now deduct 2.5 times more than they would have normally been allowed by IRS regulations.
Although the SBA has distributed the micro-grant programs, there are many cities and counties across the US that have just recently received state allocated CARES Act funding. Many of these municipalities are still distributing funds coordinated by major foundations and city-driven funds in their area (for example Alabama CARES, California Community Foundation & Bayou Recovery Fund.)
Many nonprofits worried that philanthropy would dwindle during the 2020 economic crisis. History has shown us, and these past few months have underlined, that available funding priorities shift more so than fully deplete. The CARES tax and loan programs, combined with grant-making institutions rising to support their communities, have created a window for nonprofits across sectors. While recessions typically trigger a drop in individual giving, public charities that focus on direct support (in particular for food and housing security, and disaster relief) saw an increase in giving.
With the giving season rapidly approaching, keep in mind that over 30% of nonprofit contributions are received towards the end of the year. In fact, nearly 12% of all giving happens during the last few days of the year. Keep in mind the CARES Act supports, but also ensure that your organization pursues a strong strategy for end of year giving. Appeal to your network, your community, and to institutional funders (quick guide to end of year giving here). Nonprofits are essential to the public good sector, and we can get through this—together.