At the close of 2020, new legislation provided some relief for not-for-profit organizations. Here are the highlights.
The $300 ($600 for married filing jointly) charitable deduction for non-itemizers provided under the CARES Act is extended through 2021. Further, the corporate charitable deduction limit will continue to be 25% of taxable income, instead of reverting back to 10% under previous law.
Paycheck Protection Program Loans (PPP/P3):
Paycheck protection loans are back, with some changes from the previous version. New to the guidelines – 501(c)(6) organizations now qualify for loans. Business leagues, chambers of commerce, and trade associations are typically exempt from tax under IRC 501(c)(6). Previously, only charitable organizations exempt under IRC 501(c)(3) were eligible to receive these loans.
Primary changes include a cap of 300 employees instead of the previous 500 under the CARES Act. Loans are also limited to $2 million per organization (previously $10 million). Further, organizations must show a 25% drop in revenue to qualify for a loan.
Additionally, the bill delivers streamlined forgiveness for loans less than $150,000. Such borrowers will only be required to submit a one-page online or paper form.
For borrowers who have not yet applied for forgiveness, the bill expands the opportunity to spend PPP funds across four (4) new non-payroll types of expenses:
- Covered Operations Expenditures (i.e., software and cloud computing, etc.);
- Covered Property Damage Costs (i.e. damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance);
- Covered Supplier Costs; and
- Covered Worker Protection (i.e., expenditures that are required to facilitate the adaptation of the business activities of an entity to comply with requirements established or guidance issued by the CDC or similar).
The 60/40 payroll vs. non-payroll test still applies, so these added categories require borrowers to still maintain at least 60% of forgiveness attributable to the payroll category.
Economic Injury Disaster Loan (EIDL) Grants:
Emergency grants under the EIDL program are extended through December 31, 2021. This round of granting targets organizations in low income communities, suffering at least a 30% decline in revenue, with 300 or fewer employees. The maximum grant is $10,000 and any previous EIDL grant would be subtracted from the $10,000 maximum.
For self-funded organizations, the reimbursement provision for unemployment insurance is extended to March 14, 2021.
Employee Retention Tax Credit:
The credit has been extended through July 1, 2021. The credit was increased from 50% to 70% of creditable wages up to $10,000 for two quarters with a maximum benefit of $14,000 per employee. Further, the decline in gross receipts was reduced from 50% to 20% decline for eligibility. As a reminder, the wages cannot be double-counted for this credit and a Paycheck Protection Loan.
If you have any questions on the applicability of the new law to your organization, please reach out to the accountants and advisors at Aliign and we’d be happy to assist.