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New COVID Relief Bill May Provide Additional Help for Nonprofits

The CARES Act legislation that was approved in the early days of the COVID-19 pandemic (spring of 2020) helped many nonprofits with its Paycheck Protection Program.  Thousands of charitable organizations nationwide were able to secure forgiveable loans from the Small Business Administration to ensure their ability to pay their staff members during the shutdowns.  Now, Congress has passed a new round of funding that may add to that relief.

The Consolidated Appropriations Act of 2021

It doesn’t quite roll off the tongue like CARES Act, or PPP, but the Consolidated Appropriations Act of 2021 is headed to President Trump’s desk, and his signature is expected.  This bill is a typical budget-busting pork-monster disguised a relief bill, but that’s a rant for another day.  There are provisions in here that could provide hardest hit nonprofits with additional financial relief in the coming weeks.

Here’s the key points for you:

  • Another round of Paycheck Protection Program (PPP) funding

To quickly recap, the PPP is a forgivable loan from the SBA that doesn’t really require much to qualify.  If you have a business or charity, and have under 500 employees, you pretty much qualify (see our prior post on the PPP).

Round one of funding, $350 billion, ran out in just 2 weeks.  Round 2, however, closed out with $138 billion that was never applied for.  It seems most businesses that needed funding applied for and received it.  What hasn’t been allowed, however, was any double-dip for a second loan.  Had that been available, round 2 would have run out, too.

This new legislation essentially provides a double-dip for businesses and nonprofits hardest hit, defined by a quarterly year-over-year dip in income greater than 25%.  If that has happened to your nonprofit, you may qualify for a second round of funding.

  • Expanded Use of Funds

Both rounds 1 and 2 of the PPP limited use of the funds to payroll and related expenses, with some allocation allowed for rent and other overhead expenses.  The new legislation expands the use of funds for double-dippers, to include areas of the business particularly impacted by the pandemic.

  • Enhance charitable contributions

The CARES Act allows non-itemizing taxpayers to deduct up to $300 for giving to qualified charitable 501(c)(3) organizations.  This above-the-line deduction has been expanded into 2021, and now doubles the qualifying deduction to $600 for married couples who file a joint return.

  • Expense deductibility for related costs from Rounds 1 and 2

While this doesn’t directly impact tax-exempt organizations, it’s worth mentioning because of the impact to businesses overall.

The IRS has recently ruled that businesses that received a PPP loan could not deduct for tax purposes the payroll and overhead costs paid from the loan proceeds.  The net result of that ruling essentially made the loans taxable income.  That is not what Congress intended, and there has been a large outcry for this to be fixed via legislation.

This new bill clarifies that omission by retroactively allowing business expense deduction from the original proceeds, collectively saving participating businesses approximately $170 billion in taxes this year.

  • Direct payments to individuals

This element, too, doesn’t directly target charities, but it is a huge component of the bill.  The legislation provides for direct, monetary relief of $600 per person for those making $75,000 or less, similar to the checks that went out to everyone earlier this year.  The relief is lowered by $5 for every $100 in income above $75,000, phasing out completely at $87,000.  For married couples, phaseout is complete at $174,000.  Children qualify for the $600, as well, subject to similar phaseouts.

Conclusion

This bill is not yet signed into law as of this writing, so nothing is official.  By the time you read this post, it likely will be.

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Greg McRay, EA

Greg McRay, EA

Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

This Post Has 2 Comments

  1. Hi Greg,

    I wish I had gone with your company initially, to attain our 501c3 status with the IRS. Unfortunately I hadn’t found your company before committing to another. I regret the decision I made but had no way of knowing how horrible their service would be. Alas, I’ve referred other business people to you for upcoming PPP/EILD applications, telling them the same.

    I’m still waiting on the IRS (2nd application) approval. I have the states, just waiting on the IRS… 😬.

    Happy New Year & Cheers to Much Prosperity in 2021!

    Debbie

    1. Sorry we didn’t meet sooner, Debbie! Thanks for the referrals, and keep us mind for ongoing compliance services. Happy New Year to you!

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