by Travis Weber , Connor Semelsberger
March 27, 2020
There has been much discussion recently about the “Phase 3” coronavirus relief bill, H.R. 748, the “Coronavirus Aid, Relief, and Economic Security” (CARES) Act. Passed by the Senate on March 25, passed by the House on March 27, and signed into law by President Trump on the same day, the CARES Act is designed to provide broad-based economic relief and funding in the midst of the coronavirus crisis. While some of the headline-grabbing sections of this bill address health care supplies and financial assistance for large corporations, several key provisions directly assist nonprofit organizations, including churches.
Direct Loans to Small Businesses, Nonprofits, and Churches
One of the major sections of the CARES Act is the $350 billion Payment Protection Program, which creates federally-guaranteed loans (operated by the Small Business Administration (or “SBA”)) to small businesses and other entities (including nonprofit organizations) to cover eight weeks of necessary expenses. To be eligible for these loans, the entity must have fewer than 500 employees, or the number designated as “standard” for its specific field—whatever is greater. Including entities in this manner will result in many small businesses and nonprofits being covered by these loan provisions.
For purposes of these loans, the CARES Act defines an eligible nonprofit organization as “an organization that is described in section 501(c)(3) of the Internal Revenue Code of 1986 and that is exempt from taxation under section 501(a) of such Code.” Under IRS guidance, this generally includes churches—even if they have not registered with the IRS—as long as they meet 501(c)(3) requirements that:
- They are organized and operated exclusively for religious, educational, scientific or other charitable purposes;
- Net earnings do not inure to the benefit of any private individual or shareholder;
- No substantial part of their activity may be attempting to influence legislation; and they do not intervene in political campaigns; and
- Their purposes and activities may not be illegal or violate fundamental public policy.
Under the CARES Act, limitations that the SBA places on loans to religious entities (including a requirement that religious entities show they are not principally engaged in teaching, instructing, counseling, or indoctrinating religion or religious beliefs) are waived. As long as the church or nonprofit was operational and paying salaries and payroll taxes on February 15th, 2020, it is eligible for these loans.
Ian Speir, an attorney whose clients at Nussbaum Speir Gleason PLLC include numerous churches and nonprofits, agrees, telling us it would be constitutionally problematic to exclude churches in light of recent Supreme Court decisions, which clarify that generally available public benefits can’t exclude religious organizations who are otherwise eligible. Speir also noted his agreement that churches are included within the CARES Act’s definition of “nonprofit organizations.”
Under the CARES Act, the maximum loan an organization can receive is based on a calculation that will come out to 2.5 times the average monthly payroll, or $10 million, whichever amount is less.
If an organization uses the loan to cover payroll costs, health care benefits and premiums, employee salaries, mortgage or rent payments, or any other interest payments, the loan will be forgiven. There are also provisions for waiving borrower fees and other collateral and credit requirements, as well as automatic deferrals of any payments for six months.
There are also incentives for organizations to keep employees on the payroll. The total amount forgiven will be reduced if the employer lays off any employees or reduces employee pay more than 25 percent during the loan term. The program also encourages organizations to rehire any employee already laid off by not adding any penalties for those employees brought back onto the payroll. So, if the organization certifies with the lender that it used the loan for the appropriate expenses, the loan will act as a federal grant with no need to pay any amount back. If the organization does not use the loan for appropriate expenses, it must pay back outstanding funds with an interest rate of 4 percent.
To help stop the spread of the coronavirus, local and state authorities are restricting large gatherings, causing many churches and religious organizations not to meet in person, which can cause financial setbacks for them. We are also aware that churches and nonprofits are suffering operationally through no fault of their own, creating significant financial strain. If that is the case with your organization, you may benefit from this new loan program meant to help cover payroll and other essential costs for the next eight weeks.
We recognize not every entity may seek to avail themselves of these loans, but they are there for those who wish to do so. The goal is not increased dependence on the government, but rather temporary assistance that can serve as a lifeboat through unexpected shock. In all this, we want to ensure that churches and religious organizations are not discriminated against, but rather are treated fairly and allowed access to any programs that nonreligious organizations can participate in. The coronavirus has affected all of us—religious and nonreligious alike.
Incentivizing Giving to Churches and Nonprofits
Now more than ever, churches and other charitable organizations need donations in order to meet immediate needs related to the coronavirus outbreak. But simultaneously, many Americans face financial hardship due to job loss, limited working hours, or increased medical costs. Such hardships may lead to a decline in charitable donations. By creating additional tax incentives for charitable contributions, the Phase 3 coronavirus relief package seeks to encourage Americans to continue giving throughout the crisis.
Under the CARES Act, charitable contributions up to $300 can be deducted above and beyond the standard deduction on annual tax returns. This new policy will help offset the negative impact on charitable giving precipitated by the 2017 Tax Cuts and Jobs Act, which simplified and raised the standard deduction to $12,000. This change caused many tax filers to take the standard deduction instead of itemizing their charitable contributions. During negotiations on the CARES Act, the FRC team worked alongside allied organizations to increase the total amount of tax-deductible donations. While the $300 amount was not raised, this new level may apply to tax years 2020 and beyond, leading to more incentive for charitable giving going forward.
Finally, reducing charitable giving limits for those who itemize deductions on their tax return is another positive incentive put in place by the CARES Act. The cap limiting charitable contribution deductions to 50 percent of a person’s income has been lifted for the 2020 taxable year. This policy also raises the limit on corporate deductions from 10 percent of taxable income to 25 percent and raises limits on food inventory donations from 15 percent to 25 percent.
Unemployment Insurance Assistance for Those Working for Nonprofits
In addition to the $1,200 one-time rebate checks for many Americans, the CARES Act expands unemployment insurance to help those who are without work because of the coronavirus outbreak. This bill creates a temporary Pandemic Unemployment Program that will run through the end of the year. The program provides unemployment benefits for those who do not usually qualify, including religious workers, the self-employed, independent contractors, and those with limited work history. It also covers the first week of lost wages in states that do not cover the first week a person is unemployed.
While most churches are not subject to unemployment insurance, some nonprofits should be aware of this new policy in case they need to lay off or have already laid off employees who may claim unemployment insurance. Fortunately, there is language in this bill to help nonprofits cover some of these costs. H.R. 748 provides payments to states to reimburse nonprofits that are not a part of their state’s unemployment system, reimbursing for half of the costs the nonprofits incur to pay unemployment benefits. Unlike other employers, nonprofits have the option to pay state unemployment insurance taxes or reimburse the state only for the benefits paid to former employees who collect unemployment insurance. The U.S. Labor Department’s Office of Unemployment Insurance and individual states provide more detailed information on how unemployment insurance programs operate.
Paid Medical and Sick Leave Requirements that May Implicate Nonprofits and Churches
In addition to the Phase 3 bill being discussed here, President Donald Trump signed the Phase 2 coronavirus relief bill, H.R. 6201, on March 18th, 2020. While this bill included new paid medical and sick leave requirements designed to benefit employees but which may place requirements on nonprofits, the Phase 3 bill provides for some ways to cover these expenses. The Labor Department recently released initial guidelines for these paid medical and sick leave mandates, and will provide further regulations in April 2020.
First, H.R. 6201 expands the Family and Medical Leave Act of 1993 (FMLA) by including increased leave protection for employees who are unable to work or telework because they need to care for a child whose school or childcare facility was closed due to the coronavirus. Under this expansion, employers are not required to pay the employee during the first 10 days of leave, but the employer has to pay for remaining leave time up to $200 per day.
Separate from the FMLA change described above, the Phase 2 relief bill establishes an emergency paid sick leave program that requires employers to provide two weeks of paid sick leave for employees that cannot work or telework because of the coronavirus. Employees are only entitled to this mandatory sick leave if they are: having coronavirus symptoms, have been advised to self-quarantine, subject to a government quarantine, or caring for someone with coronavirus symptoms. The total amount of paid leave is equal to two-thirds the employee’s regular wages, whether salary or hourly work, and is capped at $511 a day. Both leave requirements will expire at the end of the year.
Providing paid leave during an uncertain financial situation can be difficult for some churches and nonprofits. The cost for the above two policy changes fall on employers, but there are ways for employers to alleviate the financial burden, as described below:
- These mandates apply only to employers with fewer than 500 employees. H.R. 6201 also provides the Secretary of Labor with the ability to exclude organizations with fewer than 50 employees if providing the paid leave would jeopardize the viability of the organization.
- If an organization has more than 50 employees or is not excluded from the Department of Labor’s waiver for other reasons, the Phase 3 coronavirus relief bill creates advanceable credits to help cover paid leave. These credits are a dollar for dollar reimbursement for all wages paid under these new requirements. The tax credits also apply to costs incurred to maintain health insurance coverage.
- An organization can also apply for the Payment Protection Program loans previously mentioned that are designed to help nonprofits cover payroll costs, health care benefits during periods of paid medical and sick leave, and employee salaries.
Encouraging and Aiding the Church’s Response to the Coronavirus Outbreak
The CARES Act also recognizes how important churches and local community organizations are to providing food and other needs during this crisis. To increase state grants for these types of services, this bill provides an additional $1 billion for the Community Services Block Grant (CSBG). This grant is given to the states so they can partner with local community organizations to lower poverty, address homelessness, and provide services addressing unemployment, education, nutrition, and health. This is a grant program that churches and religious organizations can access, as the law explicitly states religious organizations must be treated the same as other nongovernmental organizations when applying for these grants. Churches in several states have partnered with community organizations or received these grants themselves to operate food banks and other key services.
Churches and other nonprofit organizations have played a critical role in meeting the spiritual and physical needs of Americans affected by the coronavirus. During Senate negotiations over how best to respond to the economic hardships our country is facing, the FRC team worked to ensure that churches and other religious groups were not left behind and were instead recognized as organizations vital to the coronavirus relief effort—and we will continue to do so going forward.