GUIDANCE FOR SMALL BUSINESSES AND NOT-FOR-PROFIT ORGANIZATIONS
The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Economic Aid Act”) was signed into law on December 27, 2020 as part of the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (“2021 Appropriations Act”). The Economic Aid Act authorizes the Small Business Administration (“SBA”) to disburse an additional $284 billion of funds through the second temporary loan program called the Paycheck Protection Program Second Draw Loans (“PPP Second Draw Program”). Specifically, the PPP Second Draw Program allows borrowers that previously received a loan through the Paycheck Protection Program (“PPP First Draw Program”) (see here for an article dated April 4, 2020 for information on the PPP First Draw Program), to apply for a second loan (“Second Draw PPP Loans”). The intent of the PPP Second Draw Program is to provide additional relief to hard-hit small businesses, including qualified not-for-profit organizations.
The below will provide a high-level understanding of the PPP Second Draw Program.
- Eligible Entities: Eligible entities include businesses, certain not-for-profit organizations (including religious organizations), housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural co-operatives.[i] Congress has specifically included language clarifying that religious organizations are eligible to apply.[ii]
- General Requirements for Eligible Entities[iii]:
- Employs 300 or fewer employees per physical location;
- Experienced a reduction in gross receipts of at least 25% in the first, second or third quarter in 2020 compared to the same quarter in 2019. Borrowers may also utilize the gross receipts from the fourth quarter of 2020 (not-for-profit and veterans’ organizations may utilize gross receipts to calculate their revenue loss standard);
- Received a loan under the PPP First Draw Program; and
- Used or will use the full amount of the loan pursuant to the PPP First Draw Program on or before the Second Draw PPP Loan is disbursed.
- Maximum Loan Amount: $2 million which includes the loan amount received and not paid back under the PPP First Draw Program.[iv]
- Calculation of Loan Amount: Average monthly payroll costs for 2019 or 12 consecutive months prior to the loan application date multiplied by a factor of 2.5.[v] Compensation is capped at $100,000 per employee annually. For more information on the definition of “payroll”, see our article dated April 4, 2020 titled Economic Relief for Non-Profit Organizations Through the Paycheck Protection Program.
- Timeline: From January 13, 2021 (depending on the application process for each authorized lender) through March 31, 2021.[vi] Borrowers should apply as soon as possible because the funds will likely be depleted prior to March 31, 2021.
- Eligible Loan Expenses:
- Sixty Percent (60%) of the loan to be used on payroll costs over the covered period (between eight (8) and twenty-four (24) weeks)[vii];
- Covered expenses set forth in the guidelines for the PPP First Draw Program (payroll costs, mortgage payments, rental payments, utility payments)[viii]; and
- Additional covered expenses include but are not limited to: (a) payment of software or cloud computing services or other human resources needs and accounting needs. (i.e., purchase of Zoom, WebEx, Amazon Cloud, QuickBooks, etc.), (b) property damages costs from disturbance occurring in 2020 that are not covered by insurance, and (c) expenses for the adaptation of the entity to comply with CDC or other governmental regulations to be COVID-19 compliant.[ix]
- Loan Terms: Loan terms for Second Draw PPP Loans are generally the same as the terms applicable to PPP First Draw Program.[x] These terms include the following:
- Guaranteed 100% by the SBA;
- No collateral required;
- No personal guarantees required;
- The interest rate is 1%, calculated on a non-compounding, non-adjustable basis;
- The maturity is five (5) years; and
- Lenders may make such loans under delegated authority from the SBA and rely on borrower’s certifications to determine eligibility and use of loan proceeds.
- Loan Application: A sample application can be found through the SBA’s website here.[xi] However, it is important for borrowers to review the application and documentation required by their individual lender before submitting a loan application.
- Loan Forgiveness:
- Loans $150,000.00 or less: Borrowers submit a simplified one page certification attesting that the entity suffered the required revenue loss and has complied with PPP loan regulations for the use of the loan proceeds.[xii] However, borrowers are required to retain relevant employment records for four (4) years and other records for three (3) years.[xiii]
- Loans greater than $150,000.00: Borrowers will need to submit the same forgiveness application required under the PPP First Draw Program and documentation adequate to establish that the borrower experienced a revenue reduction of 25% or greater in 2020 relative to 2019.[xiv]
- Limitation on Number of Loans. An eligible borrower may only receive one (1) Second Draw PPP Loan.[xv]
GUIDANCE FOR FIRST TIME BORROWERS
The PPP First Draw Program has reopened for first-time borrowers to apply as of January 11, 2021. The rules for first-time borrowers under the PPP First Draw Program have generally adopted the same guidelines as the PPP Second Draw Program, with a few changes, including: (i.) the entity may employ 500 employees or fewer, (ii.) the maximum loan amount is $10 million, and (iii.) the calculation for payroll costs can be derived from 2019, 2020 or one (1) year before the date on which the loan is made.[xvi] The updated PPP First Draw Program loan application can be found through the SBA website here.[xvii]
ADDITIONAL RESOURCES & ARTICLES
Capell Barnett Matalon & Schoenfeld LLP has written comprehensive articles relating to the Paycheck Protection Program and the Coronavirus Aid, Relief, and Economic Security Act (also known as the CARES Act), which may be relevant to your not-for-profit corporation or small business. See the below links for more information:
- April 4, 2020: Economic Relief for Non-Profit Organizations Through the Paycheck Protection Program.
- April 6, 2020: THE CARES ACT: Expansion of the Economic Injury Disaster Loans.
- April 22, 2020: Reimbursement for Mandated Sick and Family Leave Pay.
The SBA website also offers an array of helpful resources for first-time and second-time borrowers:
- January 08, 2021: Top-line Overview of First Draw PPP.
- January 08, 2021: Top-line Overview of Second Draw PPP.
- January 08, 2021: Loan Forgiveness Terms for First Draw and Second Draw PPP.
- January 06, 2021: Interim Final Rule: Paycheck Protection Program (PPP) as Amended by the Economic Aid Act.
The information in this article is continuously changing and being updated, and several details of the PPP Loans are yet to be announced by the U.S. Treasury and SBA. This publication is for informational purposes only and does not constitute legal or business advice. Each entity, based on its specific circumstances, must determine whether to seek and secure an SBA loan. In no way is Capell Barnett Matalon & Schoenfeld LLP advising that it is appropriate for all entities to seek such loans. This publication is not intended to create and the transmission and receipt of it does not constitute, a lawyer-client relationship. If your not-for-profit organization requires assistance, please contact Jodi Warren, Esq., at email@example.com or Alexandra Columbo, Esq., at firstname.lastname@example.org.
© 2021 Capell Barnett Matalon & Schoenfeld LLP. All rights reserved. Attorney advertising.
[i] Section 311 of the Economic Aid Act.
[vi] Section 343 of the Economic Aid Act.
[vii] Section 311 of the Economic Aid Act.
[ix] Section 304 of the Economic Aid Act.
[x] Section 311 of the Economic Aid Act. See also First Draw PPP Loans, https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program/first-draw-ppp-loans#section-header-2 (last visited January 14, 2021).
[xi] See SBA Form 2483-SD, https://www.sba.gov/document/sba-form-2483-sd-ppp-second-draw-borrower-application-form (last visited January 14, 2021).
[xii] Section 307 of the Economic Aid Act.
[xiv] Section 311 of the Economic Aid Act.
[xvi] See Top Line Overview of First Draw PPP issued by the SBA, https://www.sba.gov/document/support-top-line-overview-first-draw-ppp (last visited January 14, 2021).
[xvii] See SBA Form 2483, https://www.sba.gov/document/sba-form-2483-ppp-first-draw-borrower-application-form (last visited January 14, 2021).
What Non-Profit and Religious Corporations Need to Know
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) includes several provisions that enhance tax benefits for individuals and corporations that make qualified contributions to charitable organizations and shall apply to taxable years beginning after December 31, 2019. To encourage more charitable giving this holiday season, it may be helpful for non-profit corporations, including certain religious corporations, to make their members and congregants aware of the tax incentives provided to individuals and corporations, and review section 2204 and section 2205 of the CARES Act.
QUALIFIED CONTRIBUTIONS & ORGANIZATIONS
Section 2205 of the CARES Act defines a “qualified contribution” as a gift or charitable contribution that is: (i.) made in 2020; (ii.) paid in cash; and (iii.) made to certain organizations promulgated in Internal Revenue Code (“IRC”) section 170(b)(1)(A). These charitable organizations include but are not limited to, churches, hospitals and other section 501(c)(3) charitable organizations, among others listed in the IRC. Contributions made to organizations under IRC section 509(a)(3) and contributions made “for the establishment of a new, or maintenance of an existing, donor advised fund” do not qualify. The paid in cash requirement is construed strictly and donations of stock, real estate or other non-cash types of property are specifically excluded from the definition of a “qualified contribution”. Cash donations include those made by check, credit card or debit card.
TAX DEDUCTIBLE DONATIONS
a. Above-the-line Deduction
The CARES Act adds a new above-the-line deduction, available in tax years beginning after December 31, 2019, for up to $300 for cash contributions made directly to a qualified charitable organization. As an additional above-the-line deduction, it does not subtract from the standard deduction. This additional deduction lowers both adjusted gross income and taxable income, which translates into tax savings for donors who make these cash contributions in 2020. This new deduction cannot be used by an individual who elects to itemize deductions, as their charitable contributions will be reported elsewhere.
b. Limitation on Charitable Contributions
In accordance with IRC section 170 (b)(1), deductions for cash contributions to public charities are capped at sixty percent (60%) of the individual’s annual adjusted gross income. Organizations that are classified as public charities include certain churches, educational organizations, hospitals, and medical research organizations. The CARES Act suspends this limitation, allowing donors to claim up to one hundred percent (100%) of their adjusted gross income as a charitable contribution for cash gifts. If charitable contributions from an individual – as opposed to a corporation – exceeds the one hundred percent (100%) limitation, the excess contribution can be carried over for the next five (5) tax years.
2. Corporations Corporate deductions for charitable contributions are usually limited to ten percent (10%) of taxable income, pursuant to IRC section 170(b)(2). The CARES Act increases this limitation to twenty-five (25%) of a corporation’s taxable income for qualified cash contributions made in taxable years ending after December 31, 2019. For partnerships or S corporations, the increased contribution deduction must be made separately by each partner or shareholder similarly to other deductions made by such entities. If a corporation’s charitable contributions exceed the twenty-five percent (25%) limitation, the excess contributions may be carried over for the next five (5) tax years.
3. Food Inventory The CARES Act also modifies the cap on permitted deductions for contributions to food inventory (i.e., food pantries), by increasing the deduction limit of individuals and corporations to twenty-five percent (25%) of taxable income, rather than the earlier fifteen percent (15%).
ADDITIONAL RESOURCES FROM THE INTERNAL REVENUE SERVICE (“IRS”)
The IRS has provided a list of resources for individuals and corporations interested in making these donations and receiving these tax benefits. The below links may be helpful for your non-profit corporation and religious corporation during this holiday season to encourage donations:
- Tax Exempt Organization Search (TEOS). Taxpayers must give to qualified organizations to deduct their donations on their tax return. They can use this tool to find out if a specific charity qualifies as a charitable organization for income tax purposes. Click here.
- Schedule A, Itemized Deductions. Taxpayers deducting donations do so on Schedule A. The instructions for this form include line-by-line directions for completing it. Click here.
- Publication 526, Charitable Contributions. This publication explains how taxpayers claim a deduction for charitable contributions. It goes over: (i.) how much taxpayers can deduct; (ii.) what records they must keep; and (ii.) how to report contributions. Click here.
The information in this article is continuously changing and being updated. This article is for informational purposes only and does not constitute legal or business advice. In no way is Capell Barnett Matalon & Schoenfeld LLP advising that it is appropriate to only follow the information listed here. If your religious corporation or non-profit organizations requires assistance, please contact Alexandra Columbo, Esq. at AColumbo@cbmslaw.com.
© 2020 Capell Barnett Matalon & Schoenfeld LLP. All rights reserved. Attorney advertising.
The CARES Act Section 2205(a)(3)(A)(i)
The CARES Act Section 2205(a)(3)(B)(i)-(ii)
The CARES Act Section 2204(a)
The CARES Act Section 2204(b)
IRC Section 170(b)(1)(G)(i)
The CARES Act Section 2205(a)(1)
The CARES Act Section 2205(a)(2)(A)(ii)
IRC Section 170 (b)(2)
The CARES Act Section 2205(a)(B)(i)
The CARES Act Section 2205(a)(3)(C)
The CARES Act Section 2205(a)(2)(B)(ii)
The CARES Act Section 2205(b)
IRC Section 170(e)(3)(C)
As a response to the COVID-19 pandemic, President Trump signed into law the Families First Coronavirus Response Act (the “FFCRA”) along with the Coronavirus Aid, Relief, and Economic Security Act (as detailed in our previous client alert and article). The FFCRA requires small and mid-sized employers (including nonprofit and religious organizations) with less than 500 employees to provide paid sick and family leave for employees who are unable to work due to the COVID-19 pandemic, while also reimbursing employers for such compensation. It is important to note that certain small businesses (including religious and nonprofit organizations) are exempt from the mandated paid leave requirements under FFCRA as discussed below.
QUALIFYING REASONS FOR LEAVE
An employee qualifies for paid sick leave under the FFCRA if the employee (excluding health care providers and emergency responders) (a) has worked for at least thirty (30) days prior to taking paid leave and (b) is unable to work (or unable to work remotely) because the employee:
i. is subject to a Federal, State, or local quarantigne or isolation order related to COVID-19;
ii. has been advised by a health care provider to self-quarantine related to COVID-19;
iii. is experiencing COVID-19 symptoms and is seeking a medical diagnosis;
iv. is caring for an individual subject to an order described in (i.) or self-quarantine as described in (ii.);
v. is caring for a child whose school or place of care is closed (or childcare provider is unavailable) for reasons related to COVID-19; or
vi. is experiencing any other substantially-similar condition specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.
In addition to paid sick leave, an employee can qualify for up to an additional 10 weeks of paid expanded family and medical leave if the employee is unable to work due to a bona fide need to care for a child whose school or place of care is closed (or child care provider is unavailable) for reasons related to COVID-19.
DURATION OF LEAVE & MAXIMUM PAYMENT
The maximum paid leave time is 80 hours over a two-week period, so an employee cannot take 80 hours paid leave under one qualifying reason and then additional paid leave for a second qualifying reason. It is critical for employers to pay close attention to the limits for the duration of employee leave and the maximum payment permitted, as the employer will not be reimbursed for any wages paid beyond the limits.
In order to be eligible for reimbursement, which comes in the form of tax credits, the employer must be withholding payroll taxes from its employees. Under the FFCRA, qualified employers can receive 100% reimbursement through tax credits for all “qualifying wages” paid to their employees for the period between April 1, 2020 and December 31, 2020. A “qualifying wage” is defined as compensation paid to an employee who takes leave under the FFCRA for a qualifying reason (as listed above), up to the appropriate per diem and aggregate payment caps. Employers may also receive additional reimbursement through tax credits for amounts paid or the cost incurred to maintain the employee’s health insurance coverage during the paid leave period.
EXEMPTION UNDER FFCRA
There is an exemption under FFCRA which provides that the Secretary of Labor has the authority to exempt small businesses (including religious and nonprofit organizations) from the mandated paid leave requirements, if (a) the employer has less than 50 employees, (b) the employee has requested sick or medical leave to care for a child because schools or childcare services are unavailable due to COVID-19, and (c) providing such compensation would critically impact the viability of the business/organization, such that compensation under FFCRA would (i) cause the business/organization to cease operation, and (ii) pose a substantial risk to the financial wellbeing of the business/organization or (iii) generate an inability to find enough able, willing, and qualified employees to provide the required services and labor. Employers falling under this exemption should maintain records evidencing employee requests for paid leave as well as the impact such compensation would have on the business.
Additionally, employers may be exempt from the requirements under FFCRA for paid sick, medical and family leave for clergy (including pastors) and thus employers would also not be entitled to any reimbursement for paid leave of their clergy. At this point it is unclear whether clergy are excluded from the term “employee” under the FFCRA – check back for an update when more information on the regulations and exemptions are published.
NEW YORK STATE PAID SICK TIME PLAN
Additionally, on March 18, 2020, Governor Andrew M. Cuomo passed a paid leave law for COVID19, the Paid Sick Time Plan, which provides additional reliefs for residents. Employee benefits depend on the size of the employer. If there are additional benefits not given under the federal program, then New York State will provide the incremental difference. See here for specific requirements and details provided by New York State.
- The U.S. Department of Labor’s Wage and Hour Division (the “Department”) is responsible for administering and enforcing the new law’s paid leave requirements. The Department’s WHD posted a temporary rule issuing regulations pursuant to the law that can be found here.
- The U.S. Department of Labor Wage and Hour Division have released a webinar focusing on the FFCRA, which can be accessed here, along with corresponding PowerPoint slides here.
- You can access an expansive FAQ provided by the Department’s WHD to assist employees and employers here.
- A poster for your workplace can be accessed here, which will fulfill employer notice requirements. For an FAQ on these notice requirements, see here. This Field Assistance Bulletin explains the Department’s WHD’s 30-day non-enforcement policy.
- The Department’s WHD provides additional information on common issues employers and employees face when responding to COVID-19 and its effects on wages and hours worked under the Fair Labor Standards Act and job-protected leave under the Family and Medical Leave Act.
The information in this article is continuously changing and being updated. This article is for informational purposes only and does not constitute legal or business advice. In no way is Capell Barnett Matalon & Schoenfeld LLP advising that it is appropriate to only follow the information listed here. If your religious corporation or nonprofit organization requires assistance, please contact Jodi Warren, Esq., at Jwarren@cbmslaw.com or Renato Matos, Esq., at Rmatos@cbmslaw.com.
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