Takeaways

Nonprofit organizations can qualify for financial relief under certain provisions of the CARES Act, which is designed to provide aid to states, industry and workers during the COVID-19 pandemic.
The relief available to nonprofit organizations is often dependent on the size and tax-exemption classification of the organization. 501(c)(6) tax-exempt organizations can take advantage of the Employee Retention Tax Credit and the Economic Injury Disaster Loan program, but not the Paycheck Protection Program.
Most nonprofit organizations with fewer than 500 employees must offer paid leave for employees who are unable to work due to certain COVID-19 related circumstances and can claim a payroll tax credit for doing so.

Nonprofit organizations have avenues to obtain significant financial relief under the provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a $2.2 trillion stimulus package enacted on March 27, 2020, designed to address the widespread economic disruptions caused by the COVID-19 pandemic. Many nonprofit organizations are facing acute financial strain as they work to navigate the unprecedent challenges posed by the pandemic. In addition, many nonprofit organizations will need to comply with the requirements of the Family First Coronavirus Response Act (FFCRA), which provides paid leave administered by employers but funded by the federal government. Nonprofit organizations should review their eligibility for three key CARES Act provisions and the FFCRA.

Paycheck Protection Program (Section 1102 and Section 1106 of the CARES Act)

Qualifying 501(c)(3) and 501(c)(19) tax-exempt organizations are eligible for a Small Business Administration (SBA) loan under the new Paycheck Protection Program (PPP), which amends Section 7(a) of the Small Business Act. The maximum amount of the loan is determined by payroll costs—generally 2.5 times the organization’s average monthly payroll costs for the prior one-year period, subject to a $10 million cap. The loans can be used for payroll costs incurred before June 30, 2020, such as employee salaries, paid sick or medical leave, insurance premiums, and mortgage, rent, and utility payments. To qualify for the program, a 501(c)(3) must have 500 or fewer employees who are United States residents, must have paid salaries and payroll taxes prior to February 15, 2020, and must have been in operation on February 15, 2020. Thus, new 501(c)(3) organizations, and those that closed their doors prior to February 15, 2020, will not qualify. The organization will also need to certify in good faith that the current economic uncertainty makes the PPP loan “necessary… to support the ongoing operations” of the recipient, that the funds “will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments,” and that the organization has not received and will not receive another PPP loan, along with certain other statements.

The full amount of the principal of the loan can be forgiven for the first eight-week period beginning on the date the lender makes the first disbursement of the PPP loan to the borrower, for documented expenditures on payroll costs, mortgage payments, rent, and covered utility payments. Forgiveness for payroll costs excludes a portion of the salaries of highly paid employees, to the extent those salaries exceed $100,000 annualized. According to Treasury Department guidance, however, the exclusion applies only to cash compensation, not to non-cash benefits, such as employer contributions to retirement plans, payment of group health care coverage premiums, and payment of state and local payroll taxes. No more than 25 percent of the forgiven amount may be for non-payroll costs.

The PPP incentivizes employers to keep employees employed and paid. Amounts forgiven will be reduced proportionally for any reduction in employees’ salaries by more than 25 percent or in the number of full-time employees, unless through rehires or salary increases the borrower “has eliminated the reduction in the number of full-time equivalent employees” and “has eliminated the reduction in the salary or wages of such employees” no later than by June 30, 2020.

Balances remaining after loan forgiveness will be payable over a two-year term with a 1 percent fixed interest rate.

Eligible nonprofit organizations can apply with an eligible lender for a PPP loan, using this application form.

Employee Retention Tax Credit (Section 2301 of the CARES Act)

Any 501(c) tax-exempt organization that is not participating in the PPP may be eligible for an Employee Retention Tax Credit for up to 50 percent of employee qualified wages paid during the covered period (March 13, 2020 through December 31, 2020). The credit is capped at $5,000 per year per employee. To qualify for this tax credit an organization must have either:

  • Fully or partially suspended operation (meaning that operations can continue but not at a normal capacity) during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or
  • Experienced at least a 50 percent decline in gross receipts during the calendar quarter compared to the same quarter in 2019.

Employers can receive the tax refund if the credit exceeds their payroll taxes due. For employers with at least 100 employees in 2019, the credit is only for “qualified wages” provided to employees who are not providing services to the employer during the quarter. The tax credit is much greater for employers with fewer than 100 employees in 2019; for these smaller employers, “qualified wages” cover all employees during the covered period, whether working or on paid leave. Qualified wages include the eligible employer’s qualified health plan expenses that are properly allocable to the wages, to the extent that such amounts are excluded from the gross income of employees.

Eligible employers can claim the refundable credit by reporting their total qualified wages and the related credits for each calendar quarter on their federal employment tax returns, usually Form 941, Employer’s Quarterly Federal Tax Return (used to report income and social security and Medicare taxes withheld by the employer from employee wages, as well as the employer’s portion of social security and Medicare tax). In anticipation of receiving the refund, eligible employers can fund qualified wages by accessing federal employment taxes, including withheld taxes, that are required to be deposited with the IRS or by requesting an advance of the refundable credits from the IRS.

Paid leave amounts for which the employer receives payroll tax credit under the Families First Coronavirus Response Act (FFCRA) are not eligible for the Employee Retention Tax Credit.

Economic Injury Disaster Loan and No-Repayment Advance (Section 1110 of the CARES Act)

The Small Business Administration permits any 501(c) tax-exempt organization with no more than 500 employees—including 501(c)(6) tax-exempt trade associations—to apply for an Economic Injury Disaster Loan (EIDL) to cover loss of revenue of up to $2 million, at an interest rate for nonprofits of 2.75 percent, as further discussed in Pillsbury’s alert on SBA loan opportunities. The CARES Act waives the personal guaranty requirement and the requirement for applicants to demonstrate that they are unable to obtain credit from other sources. Organizations may apply through the Small Business Administration application.

Significantly, organizations may request an advance of up to $10,000 through December 31, 2020. The funds from this program are made available within three days of a successful application, and the advance will not have to be repaid if used for paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments, or repaying obligations that cannot be met due to revenue loss.

The Families First Coronavirus Response Act

As detailed in a March 18, 2020 client alert, the Families First Coronavirus Response Act (FFCRA) requires employers, including nonprofit organizations, with fewer than 500 employees in the United States to provide partial paid leave to employees unable to work, including unable to telework, due to the following reasons.

  1. The employee is subject to a federal, state, or local quarantine or isolation order related to COVID-19;
  2. The employee has been advised by a health care provider to self-quarantine related to COVID-19;
  3. The employee is experiencing COVID-19 symptoms and is seeking a medical diagnosis;
  4. The employee is caring for an individual subject to a quarantine or isolation order or who has been advised by a health care provider to self-quarantine in connection with COVID-19;
  5. The employee is caring for their child whose school or place of care is closed (or childcare provider is unavailable) due to COVID-19 related reasons; or
  6. The employee is experiencing any other substantially similar condition specified by the U.S. Department of Health and Human Services.

Covered employers must give a Department of Labor notice to employees of their FFCRA rights.

From April 1 through December 31, 2020, employees unable to work, onsite or through telework, for any of the first three reasons above (i.e., for their own needs) will be entitled to their wages for up to ten workdays, capped at $511 daily and $5,110 total. Employees needing to stay home from work and unable to telework for other qualifying reasons, such as because of school or childcare closures, may receive a combination of paid sick leave and expanded Family and Medical Leave Act (FMLA) leave (which for this purpose also covers any employer with fewer than 500 employees, even if otherwise the employer is too small to be covered by the FMLA) at two-thirds of their regular salary, up to a cap of $200 per day, for a maximum of twelve weeks combined. The full amount of paid leave provided by employers under the FFCRA may be deducted from the employer’s quarterly payroll taxes, if the employer retains appropriate documentation that the leave qualifies for FFCRA payments. If the employer agrees, this leave may be taken intermittently, as explained in this March 27, 2020 client alert.

Certain small businesses, including nonprofit organizations, with fewer than 50 employees may be exempted from the FFCRA requirements if doing so would jeopardize the viability of the small business. Pillsbury’s April 7, 2020 client alert details new regulations implementing these FFCRA provisions.

Pillsbury attorneys are available to help advise nonprofit organizations regarding benefits available under the CARES Act and compliance with the Families First Coronavirus Response Act’s requirements for employers.


Pillsbury’s experienced crisis management professionals are closely monitoring the global threat of COVID-19, drawing on the firm’s capabilities in supply chain management, insurance law, cybersecurity, employment law, corporate law and other areas to provide critical guidance to clients in an urgent and quickly evolving situation. For more thought leadership on this rapidly developing topic, please visit our COVID-19 (Coronavirus) Resource Center.

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