CARES Act Provides Benefits to Nonprofit Organizations


By: Alexander Pyle

April 2, 2020

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020, includes a number of provisions applicable to nonprofit organizations. This client alert highlights some of the most significant of these provisions.

  1. Paycheck Protection Program. This program, administered by the Small Business Administration (“SBA”), is designed to help eligible businesses continue to pay operational costs like payroll, health benefits, rent, mortgage payments, insurance premiums and utilities. Businesses can obtain loans through participating banks that will be forgiven if certain conditions are met regarding the use of loan proceeds and the maintenance of employment and compensation levels. Eligible businesses are defined to include 501(c)(3) nonprofit organizations, as well as 501(c)(19) veterans’ organizations, which have 500 or fewer full-time and part-time employees. For further details about the program, see our prior client alerts (Paycheck Protection Program Application Process and Guidelines Established and Paycheck Protection Program).
  2. Economic Injury Disaster Loans. This SBA program also provides for loans to small businesses affected by the COVID-19 pandemic. Although the loans are not forgivable like the Paycheck Protection Program loans, they do offer favorable terms, including the opportunity to obtain an advance of up to $10,000 within 3 days, which does not have to be repaid if the loan application is rejected. “Private nonprofit organizations” are eligible to participate in this program, although it is unclear if that term is limited to 501(c)(3) organizations, or would also cover other types of nonprofit organizations. Further details about the program are set forth in our prior client alert (US SBA Offers Financial Assistance to Businesses Impacted by Coronavirus).
  3. Payroll Tax Credit. The CARES Act provides a refundable payroll tax credit for 50% of wages paid by eligible employers, including nonprofits, to certain employees during the COVID-19 crisis. The credit is available to employers whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings. The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis. The credit is not available to employers receiving Paycheck Protection Program loans. Further details about this tax credit are included in our recent client alert (CARES Act Tax Benefits for Businesses).
  4. Deferral of Payroll Taxes. The CARES Act allows employers, including nonprofits, to defer paying the employer portion of certain payroll taxes through the end of 2020. Half of the deferred amount must be paid by December 31, 2021 and the other half by December 31, 2022. This deferral is not available to employers receiving Paycheck Protection Program loans. Further details about this tax credit are included in our recent client alert (CARES Act Tax Benefits for Businesses).
  5. Economic Stabilization Fund. Larger nonprofits with between 500 and 10,000 employees may be able to benefit from the $454 billion of financial assistance to be made available under the CARES Act through the Treasury Department. While the details of the Treasury’s assistance program are still being developed, the program will provide for direct loans and loan guarantees for businesses, including nonprofits. The loans would not be forgivable. Loans made under the program would have an interest rate no greater than 2%, and have no payments due in the first six months. Borrowers will be required to certify as to several matters in order to qualify, including that the loan proceeds will be used to retain at least 90% of the borrower’s workforce at full compensation through September 30, 2020, and that the borrower intends to restore not less than 90% of its workforce that existed on February 1, 2020 within four months after the end of the coronavirus crisis. Borrowers would also be subject to limits on executive compensation.