Update (4/8/20): New Post – How nonprofits and churches can apply for the Paycheck Protection Program
Updates (4/7/20): The SBA has answered more questions to clarify guidelines for the Program. Here is a link to the Q&A if you would like to see the full responses the SBA provided.
Question 7: “The CARES Act excludes from the definition of payroll costs any employee compensation in excess of an annual salary of $100,000. Does that exclusion apply to all employee benefits of monetary value?” The short answer is no, which is consistent with how Aplos interpreted the previous guidance. It is now clear where the $100k limit applies.
Question 14: “What time period should borrowers use to determine their number of employees and payroll costs to calculate their maximum loan amounts?” Before, we directed people to check with their bank as it wasn’t clear if organizations could use the previous 12 months or calendar year 2019. It is now clear that either time frame works.
Question 16: “How should a borrower account for federal taxes when determining its payroll costs for purposes of the maximum loan amount, allowable uses of a PPP loan, and the amount of a loan that may be forgiven?” It was previously unclear if employee federal withholding, social security withholding and medicare withholding needed to be reduced in calculating the maximum loan amount. This has been clarified that it should NOT reduce payroll, but payroll is reported as gross wages.
Important Note: If you are using the loan calculator we provided below, make sure to leave the column for “Taxes withheld or imposed under FICA, Medicare, and Federal Income Tax” empty.
Updates (4/3/20): Based on new guidance issued by the SBA, there have been some updates to the Paycheck Protection Program. Please check with your bank, as information is constantly changing and your bank may have a different interpretation of these sections.
Independent Contractors: In Sections 1 & 3 in the Paycheck Protection Program section below, payments to independent contractors do not appear to count for purposes of the PPP loan calculation or for purposes of loan forgiveness. This is based on these questions answered by the U.S. Treasury (see page 11, section h, and page 15, section p).
Calculating Payroll: There are currently inconsistencies in the document linked above. It directs applicants to aggregate payroll costs for the last 12 months in one section, but directs banks to request average monthly payroll for the preceding calendar year in another. It is unclear what is required. Make sure to check with your bank for specific instructions.
Are pastors included as employees? Because pastors have dual-tax status, it is unclear whether they should apply on their own as self-employed, or be counted as an employee of the church.
How Nonprofits & Churches Can Use The Paycheck Protection Program
On March 27, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law, and it includes some significant new programs that impact nonprofits and churches. We have an overview of the most relevant items below, but we are going to take a little bit of extra time with the Paycheck Protection Program. If your organization is seeing some disruption in your day-to-day operations, and fluctuation in giving levels, it is worth considering the program if you have paid staff.
Both nonprofits and churches are eligible for the Paycheck Protection Program through the CARES Act, and it can help you keep paying your staff over the uncertainty of the next couple of months. In addition, if you maintain your staff and salary levels, it’s possible for a portion or the full amount of that loan to be forgiven.
Our own company is going to go through the process with our local SBA bank, and we will publish the tools we use, and the step-by-step process in a series of articles. Our hope is it will help you identify if this is a good fit for your organization and show you the tools you need to take action.
Let’s start with a quick look at the Paycheck Protection Program.
While the SBA program typically provides loans for businesses, it has been expanded in this case to include nonprofits and churches. The emergency SBA 7(a) loan program will provide loans of up to $10 million for nonprofits and small businesses that are eligible. These loans will allow them to cover costs of payroll, benefits, rent, utilities, and mortgage interest. There is also an opportunity for these loans to be wholly or partially forgiven, under certain circumstances. Guidance from the SBA is still coming out, but here is a general overview based on our interpretation of what was included in the original text of the new law.
1. Which Nonprofits And Churches Are Eligible?
This is available to entities that existed on February 15, 2020 with paid employees or paid independent contractors (see 4/3 update). You must have 500 or fewer employees.
2. No Personal Guarantee Required
You will not be required to offer a personal guarantee or collateral to secure a loan.
3. Amount Of Your Loan
Your maximum loan amount will equal 2.5 times your average total monthly payroll costs (including benefits) from the one-year period prior to the date of your loan application. When estimating your payroll costs, you will want to include costs for your full-time and part-time employees, as well as independent contractors (see 4/3 update):
- Salary, wage, commission, or similar compensation
- Payment of cash tip or equivalent
- Payment for vacation, parental, family, medical, or sick leave
- Allowance for dismissal or separation
- Payment required for the provisions of group health care benefits, including insurance premiums
- Payment of any retirement benefit
- Payment of state or local tax assessed on the compensation of the employee
To help with this calculation, download our Excel calculator:
For more details on eligible payroll expenses, check out this guide by the U.S. Chamber of Commerce.
4. Using The Loan
Your nonprofit or church can use loan funds to make payroll and associated costs, including health and retirement benefits, rent, utilities, and mortgage interest.
5. Loan Forgiveness (Section 1106)
If your nonprofit or church maintains the same number of employees, and does not reduce salaries and wages by more than 25% for at least eight weeks after the origination of the loan, or if it rehires employees by June 30, it could be eligible for loan forgiveness. This would effectively turn your loan into a grant for qualified expenses, including payroll costs, utilities, rent, or interest on your mortgage. Discuss limits and qualifications with your SBA lender to see if your organization would qualify.
A note for churches: At this time, the program does not specifically indicate if you can include pastoral housing allowances in the loan amount or in loan forgiveness. Be sure to clarify this with your SBA lender since there may be more guidance published in coming days.
1. Discuss with your leadership if you want to consider the program.
There will likely be a high demand for this program, so don’t wait too long to start the process. Share this article or the onesheet below to help explain how it works.
Si desea un PDF imprimible sobre cómo el Programa de Préstamos de Protección de Cheques de Pago podría afectar a su organización sin fines de lucro o iglesia, haga clic aquí: PDF en Español
2. Estimate your loan and loan forgiveness.
To decide if it is worth the effort, download our Excel calculator to enter your payroll costs. It will estimate the maximum value of the loan and the amount that may be forgiven.
3. Talk to the experts.
Get the ball rolling and reach out to your bank to see if they are an SBA lender or recommend one locally. They will have more information and updated guidance on the program to help you apply.
What did the Paycheck Protection Program application process look like for Aplos?
Aplos investigated the application process for the Paycheck Protection Program in order to educate our readers on what to expect when applying. When we applied, the following information was requested from our bank:
- Completed SBA Paycheck Protection Program Application Form
- An addendum describing ownership is we were an owner of any other business, or have common management with, any other business
- Payroll documentation from our payroll system
- Detail of each full time or equivalent employee and payroll costs (as defined in the application) for 1/1/2019 – 12/31/2019
- The average monthly payroll costs derived from 2/15/2019 – 6/30/2019 if we were a seasonal business
- The average monthly payroll costs are derived from 1/1/2020 – 2/29/2020 if we were a new business
- Verification that our business was in operation on 2/15/2020+ (Aplos provided payroll reports for February 15 and February 28)
The Payroll Protection Program is a key piece of the CARES Act that was just signed into law. But there are a number of other programs and updates that may also benefit you, your team, and your donors. Here is a quick overview.
Delay Payments Of Payroll Taxes (Section 2302)
Your nonprofit or church can delay payment of your employer portion of payroll taxes in 2020 to ease your cash flow. Instead, this can be payable in equal halves at the end of 2021 and 2022.
Economic Injury Disaster Loans (EIDL) (Section 1110)
Eligible nonprofits with 500 or fewer employees can access these emergency funds to receive checks for $10,000 within three days to assist with short-term cash flow. This amount would then be rolled into your emergency Paycheck Protection SBA loan, which you would repay. You could also apply for loan forgiveness if you qualify.
Next Step: While you can apply for the program at https://covid19relief.sba.gov/#/, it may be best to apply for the Paycheck Protection Program above at your local SBA bank so you can roll it into your loan and qualify for loan forgiveness.
Employee Retention Payroll Tax Credit (Section 2301)
If your organization has been significantly impacted with a whole or partial shutdown, and seen a drop in revenue of at least 50% in the first quarter of 2020 compared to the first quarter of 2019, you may qualify for a refundable payroll tax credit of up to $5,000 for each employee on your organization’s payroll.
Your organization would continue to qualify for this credit each quarter until your entity’s revenue exceeds 80% of the same quarter in 2019. For any tax-exempt organization, the entity’s whole operation has to be taken into account when determining eligibility. Keep in mind, employers receiving Paycheck Protection Program loans would not be eligible for these credits.
For Organizations With 500-10,000 Employees: Treasury Industry Stabilization Loans (Section 4003)
Mid-sized nonprofits or churches with 500-10,000 employees may be eligible for loans under this provision. There is no loan forgiveness provision, but mid-sized business loans will not be charged an interest rate higher than 2%. They also won’t accrue interest or require repayments for the first six months. If your organization is considering accepting a mid-sized business loan, you must retain at least 90% of your staff at full compensation and benefits until September 30.
Above-The-Line Deduction For Charitable Contributions (Section 2204)
While not a significant tax savings, this will enable all taxpayers, including those who do not currently itemize their deductions, to claim a charitable deduction of up to $300 through December 31. Donations to Donor-Advised Funds (DAFs) and supporting organizations are not eligible. This would impact a taxpayer’s 2020 tax return. For any individual who claims a standard deduction, they could claim the $300 tax break in addition to the $12,400 standard deduction.
Example: If a taxpayer were in the 22% tax bracket, this would lead to an approximate $66 savings in your taxes. In comparison, if you are in the 37% tax bracket, it would be a savings of $111, and the 12% tax bracket would save $36.
Changes To Gross Income Limits On Charitable Deductions For Individuals And Corporations (Section 2205)
Regarding cash gifts made by individuals or corporations, the adjusted gross income limits on charitable deductions were suspended or adjusted. The limit for individual taxpayers who itemize deductions increased from 60% to 100% of adjusted gross income. The limit for corporations increased from 10% to 25%. For food donations, the corporate cap increased from 15% to 25%.
Direct Payments (Section 2201)
Adults can receive $1,200 or less, and $500 per child, sent out over the coming weeks. These amounts are phased out based on earnings of between $75,000 and $99,000 (or $150,000 and $198,000 for couples).
Expanded Unemployment Insurance (Section 2104)
This coverage applies to furloughed workers, gig workers, and freelancers. This increases payments by $600 per week for four months on top of what state unemployment programs pay.
Sick and Family Leave (Section 3601 & 3602)
Amounts will be lowered that employers must pay for paid sick and family leave under the Families First Coronavirus Response Act* (enacted March 19) to the amounts covered by the refundable payroll tax credit. For example, those amounts would be $511 per day for employee sick leave or $200 per day for family leave.
The CARES Act also included targeted funding for specific programs that are significantly impacted. If your organization serves a program in one of these areas, it could mean increased opportunities to apply for grants or funding. Information on how this funding will be distributed is still rolling out, but here is an overview of where funding was allocated:
- Child Nutrition Programs – $8.8 Billion
- Supplemental Nutrition Assistance Program (SNAP) – $15.5 Billion
- Emergency Food Assistance Program – $450 Million
- Bureau of Indian Affairs – $453 Million
- Community Services Block Grant – $1 Billion
- Head Start – $750 Million
- Low-Income Home Energy Assistance – $900 Million
- Child Care Development Block Grant – $3.5 Billion
- Children and Family Services Programs – $1.9 Billion
- National Domestic Violence Hotline – $2 Million
- Family Violence Prevention – $45 Million
- Runaway and Homeless Youth – $25 Million
- Child Welfare Services – $25 Million
- Aging and Disability Services – $955 Million
- National Endowments for the Arts and Humanities – $75 Million each
- Institute of Museum and Library Services – $50 Million
- Community Development Block Grant – $5 Billion
- International Disaster Assistance – $50 Million
- Public Health and Social Services Emergency Fund – $27 Billion
- Veterans Administration Homelessness Assistance Grants – $4 Billion
If you’d like to read more about these provisions in the bill itself, we’ve provided the reference links in the corresponding paragraphs where you can find it in the bill. You can also read the entire bill if you prefer.