Consolidated Appropriations Act: Relief for Nonprofits

By Sibi B. Thomas  |  January 7, 2021

The Consolidated Appropriations Act of 2021 (the “Act”), signed into law on December 27, 2020, updates several provisions from the Coronavirus Aid, Relief, and Economic Security (CARES) Act, specifically for Paycheck Protection Program (PPP) loans. PPP loan eligibility criteria has now been expanded to include Sec. 501(c)(6) organizations for the first time. This alert will provide an overview of the various provisions that affect nonprofit organizations. 

Second Draw of PPP Loans

Eligible organizations may receive a maximum of $2 million under the PPP loan program. One of the Act’s biggest changes is making the PPP available to organizations that already received the first round of PPP loans.

To be eligible for these loans, the organization must:

• employ no more than 300 employees;

• have used or will use the full amount of the first PPP loan; and

• demonstrate at least a 25% reduction in gross receipts in the first, second or third quarter of 2020 relative to the same 2019 quarter; applications submitted on or after January 1, 2021 are eligible to utilize the gross receipts from the fourth quarter of 2020.

501(c)(6) organizations are eligible if they meet the following additional conditions:

• the organization does not receive more than 15% of its receipts from lobbying;

• the lobbying activities do not comprise more than 15% of its activities;

• the cost of lobbying activities of the organization did not exceed $1 million during the most recent tax year; and

• the organization has 300 or fewer employees.

Loan Amount

In general, borrowers may receive a loan amount of up to 2.5 times the average monthly payroll costs in the one year prior to the loan or the calendar year. No loan can be greater than $2 million.

Loan Forgiveness

Borrowers of the PPP second draw loan would be eligible for loan forgiveness equal to the sum of their payroll costs, as well as covered mortgage, rent and utility payments and other eligible expenses under the PPP loan program. The 60/40 cost allocation between payroll and non-payroll costs to receive full forgiveness will continue to apply.

The Act also created a simplified forgiveness application process for loans of $150,000 or less.

Charitable Deductions

The Act will extend deductions to 2021 of up to $300 in charitable gifts in 2020 for people who do not itemize their taxes.

Deductible charitable contributions are extended to one year for individuals who itemize and for corporations. For individuals, the cap would remain at 100% of the adjusted gross income instead of reverting to 60%. For corporations, the annual limit would stay at 25% of taxable income in 2021 instead of reverting to 10%.

Extension of the Employee Retention Tax Credit (ERTC)

The Act extends the ERTC for six months through July 1, 2021. It also expands the program to nonprofits excluded from PPP participation, by reducing the required decline in gross receipts from 50% to 20%, increasing the refundable payroll tax credit from 50% to 70%, and covering up to two quarters for a total benefit of $14,000 per covered employee. It also provides that employers receiving PPP loans may still qualify for the ERTC with respect to wages that are not paid for with forgiven PPP proceeds.

Extension of Emergency Unemployment Relief

The provision in the CARES Act to provide federal support to cover 50% of the costs of the unemployment benefits for employees of state, local and nonprofit organizations is now extended through March 14, 2021. Many nonprofits self-insure and make payments for unemployment insurance as they owe, and this extension will be a relief to them.

Employee Payroll Tax Deferral

Over the summer, President Trump issued an executive order to allow certain employees to defer the 6.2% share of Social Security tax on wages paid from September 1, 2020 through the end of the year until the first four months of 2021. The Act extends the due date for that deferral to be repaid from April 30, 2021 until December 31, 2021.

Save Our Stages Program

This $15 billion program is important for nonprofits in the arts, especially museums and theaters. Venues with fewer than 500 employees that have been shut down by the pandemic and have seen gross revenues fall by more than 25% are eligible for grants of up to 45% of 2019 gross revenues, capped at $10 million.

The U.S. Small Business Administration (SBA) and the Treasury Department issued guidance on January 6, 2021 for the Second Draw of PPP. The guidance came in the form of two interim final rules (IFRs) and can be downloaded here :  82-page IFR and 42-page IFR .

Marks Paneth will continue to monitor developments and will provide updates as they become available. Contact your Marks Paneth advisor if you need additional information or assistance or email responseteam@markspaneth.com.

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About Sibi B. Thomas