CARES Act FAQs
What Recent Legislation Means for You
The CARES Act, signed into law on March 27, 2020, makes significant assistance available to churches, religious organizations, and their employees. Portico offers the following summary to help guide you through, based on our current reading of the statute. Because the IRS or other administrative agencies may issue future guidance causing this information to change, and since every taxpayer’s situation is unique, we encourage you to consult with an accountant or attorney familiar with the unique status of your taxes before taking action.
Please check back frequently. Originally published on April 2, 2020, these CARES Act FAQs will be updated as new information becomes available.
Who is Eligible for a Rebate, and How Much Will They Receive?
All U.S. residents with adjusted gross income up to the following limits are entitled to receive rebates under the CARES Act as follows:
- A rebate of $1,200 ($2,400 for joint filers) is available to U.S. residents who are not a dependent of another taxpayer and who have a work-eligible Social Security number, if their adjusted gross income is no more than $75,000 for single filers, $112,500 for head of household filers, or $150,000 for joint filers.
- Amounts will be based on adjusted gross income reported on taxpayers’ 2019 tax return or, if not yet filed, their 2018 return.
- An additional $500 per qualifying child under the age of 17 also will be provided.
- The full rebate is available to individuals who have little to no income or who have non-taxable income from means-tested entitlement programs (e.g., Supplemental Security Income, the Earned Income Tax Credit, and the Child Tax Credit).
- The total rebate is reduced by $5 for each $100 of taxable income above the thresholds and is completely phased out for incomes exceeding $99,000 for single filers, $146,500 for head of household filers with one child, and $198,000 for joint filers with no children.
How Will Rebates Be Paid? Updated April 17, 2020
For the vast majority of Americans, no action is needed. The rebate will be electronically deposited into any account authorized by the taxpayer on or after Jan. 1, 2018, to receive a federal income tax refund or other federal payment. Those who haven’t received a direct deposit will need to give the IRS their payment information via a web-based application. Taxpayers will receive a confirmation letter from the IRS within 15 days after their rebate has been paid.
Track the status of your rebate or add your direct deposit information if you didn’t file taxes in the past two years or didn’t receive a refund through direct deposit.
How Does the CARES Act Increase the Amount of Unemployment Benefits?
The CARES Act enhances benefits for all workers eligible for unemployment. Unlike the Families First Coronavirus Response Act (FFCRA) passed on March 18, 2020, which only applies to private employers with fewer than 500 employees, the CARES Act applies to all employers regardless of size.
Unemployment benefits are state-based programs, and the benefit amount depends on the state involved. Generally, unemployment compensation benefits replace about one-third to one-half of wages. For workers not covered by a state law, or for self-employed individuals, the weekly benefit is calculated under 20 C.F.R. § 625.6, which is the Disaster Unemployment Assistance (DUA) program already in place under federal law. DUA benefits are administered by the state but funded by the federal government. The minimum weekly benefit amount is the average benefit amount of the state.
The CARES Act increases unemployment compensation benefits available under state programs as follows:
- Expands the availability of benefits to individuals not covered by a state program (see eligibility FAQ below)
- Extends the duration of state benefits by 13 weeks, to up to 39 weeks in total, expiring Dec. 31, 2020
- Provides an additional $600 weekly payment available for up to four months (expiring July 31, 2020), even if this takes the employee above their pre-unemployment earnings level
- Adds a short-term compensation benefit for workers who have not been laid off but whose employment and wages have been reduced due to COVID-19
- Eliminates waiting periods
How Is Eligibility for Unemployment Benefits Expanded?
The CARES Act creates a temporary Pandemic Unemployment Assistance Program (PUAP) for workers not traditionally eligible for unemployment benefits and who are unable to work as a direct result of COVID-19. The Act extends coverage to workers who are self-employed, seeking part-time employment (if permitted under state law), do not have sufficient work history, or otherwise would not qualify for regular unemployment under state or federal law and become unemployed or cannot find work due to COVID 19. The program is intended to cover independent contractors, too.
An Unemployment Insurance Explainer on the CARES Act, prepared by the House Ways and Means Republicans on March 20, 2020, states: “This also covers workers laid off from churches and religious institutions who may not be eligible under the State’s program.”
In many states, nonprofit and religious organizations may elect to participate in the state program and pay the unemployment compensation taxes, or to be self-insured for unemployment benefits (typically making contributions through the state system once an employee is eligible for benefits). These organizations will only be responsible for paying 50% of the unemployment benefits their employees collect as opposed to 100%; under the CARES Act, the federal government will reimburse the state for the remaining 50%.
In some states, nonprofit and religious organizations are exempt from the state program. While the CARES Act provides coverage for unemployed workers of such organizations, how the states will administer the benefits for these workers will depend on each state.
To determine how to apply for benefits in a state, see the U.S. Department of Labor website.
In addition to the above-mentioned requirements, covered individuals are those who are unemployed, partially unemployed, or unable to work due to any of the following:
- They have tested positive for COVID-19 or are experiencing symptoms of COVID-19 and are seeking a medical diagnosis
- A member of their household has been diagnosed with COVID-19
- They are providing care for a family or household member who has been diagnosed with COVID-19
- A child or other person in the household for whom they have primary caregiving responsibility is unable to attend school or another facility that is closed as a direct result of COVID-19, and such school or facility care is required for the individual to work
- They cannot reach their place of employment because of a quarantine imposed as a direct result of the COVID-19 public health emergency
- They cannot reach their place of employment because the individual has been advised by a health care provider to self-quarantine due to concerns related to COVID-19
- They have become the breadwinner for a household because the head of the household has died as a direct result of COVID-19
- They had to quit their job as a direct result of COVID-19
- Their place of employment is closed as a direct result of the COVID-19 public health emergency
- They meet any additional criterial established by the Secretary for unemployment assistance
Employees who can telework with pay and those who are receiving Emergency Paid Sick Leave (EPSL) or Family and Medical Leave Act-Public Health Emergency Leave under the Families First Coronavirus Response Act (FFCRA), or who are receiving paid leave under an employer plan or state or local law, cannot simultaneously receive unemployment benefits under the CARES Act. Workers who voluntarily quit are not eligible for these benefits.
Covered individuals will receive benefits for weeks of unemployment, partial unemployment, or inability to work caused by COVID-19 beginning on or after Jan. 27, 2020, and ending on or before Dec. 31, 2020, for as long as the unemployment, partial unemployment, or inability to work caused by COVID 19 continues.
What About Assistance for Employees With Reduced Hours?
The CARES Act provides funding to support states that develop a “short-time compensation” program for employers that reduce hours in lieu of a layoff (but not for seasonal, temporary, or intermittent employees). Many states already have so-called “work share” programs that provide for partial unemployment benefits when employers make hours reductions, or partial furloughs, in lieu of layoffs. Under such a program, employees whose hours have been reduced would receive pro-rated unemployment benefits, and the federal government would fund 100% of the costs employers incur by retaining employees at reduced hours through Dec. 31, 2020. This is intended to provide an incentive for employers to reduce employee hours in lieu of laying off employees.
What Student Loan Relief Is Available?
The CARES Act provides for the following:
- Temporary relief for federal student loan borrowers: Principal and interest payments are deferred without penalty on federal student loans through Sept. 30, 2020. No interest will accrue during this period and the borrower will be treated as if payments were made for purposes of loan forgiveness and loan rehabilitation programs. Collection activity on such loans also must cease during the period ending Sept. 30, 2020. Borrowers have the option to continue to pay principal on their student loans during this period. Lenders are required to notify borrowers about the deferral period and details for resuming payments.
- Expanded ability for certain employers to repay student loans: The Act enables employers to provide a student loan repayment benefit to employees on a tax-free basis. An employer may contribute up to $5,250 annually toward an employee’s student loans, and such payment would be excluded from the employee’s income. The $5,250 cap applies to both the 2020 student loan repayment benefit as well as other educational assistance (e.g., tuition, fees, books) provided by the employer under current law. The provision applies to any student loan payments made by an employer to the employee or directly to the lender on behalf of an employee after March 27, 2020, and before Jan. 1, 2021.
- Adjustments for teachers unable to complete their service obligation: For teachers who could not finish their year of teaching service as a result of COVID-19, their partial year of service will be counted as a full year of service toward TEACH grant obligations or Teacher Loan Forgiveness. The CARES Act waives a requirement that teachers must serve consecutive years of teaching service for Teacher Loan Forgiveness eligibility, if a teacher’s service is not consecutive as a result of COVID-19.
Can Individuals Withdraw Money From Their Retirement Plan to Meet Immediate Financial Needs?
The CARES Act adds a new category of in-service distribution, referred to as a “coronavirus-related distribution,” available to qualified individuals regardless of whether the distribution would otherwise be permitted. A coronavirus-related distribution is a distribution of up to $100,000 for a taxable year made from a 401(a) plan, 403(b) plan, governmental 457(b) plan, or IRA from Jan. 1 – Dec. 31, 2020, to a “qualified individual.”
A qualified individual is a person who is diagnosed, or has a spouse or dependent diagnosed, with COVID-19 by a test approved by the Centers for Disease Control and Prevention (CDC), or a person who experiences adverse financial consequences as a result of:
- Being quarantined, furloughed or laid off, or having work hours reduced due to COVID-19, or
- Being unable to work due to lack of child care due to COVID-19, or
- Being unable to work due to closing or reducing hours of a business owned or operated by the individual due to COVID-19, or
- Other factors as determined by the Secretary of the Treasury
Importantly, the retirement plan administrator may rely on an employee’s certification that one of the above conditions is satisfied in determining whether a distribution is a coronavirus-related distribution. An employer is responsible for complying with the $100,000 distribution limit only with respect to the retirement plans it and any employer in its controlled group maintains.
A coronavirus-related distribution is not treated as an eligible rollover distribution, mandatory withholding does not apply, and a 402(f) special tax notice is not required. Additionally, the 10% early distribution penalty tax does not apply.
Unless a participant elects otherwise, a coronavirus-related distribution will be included in the participant’s gross income ratably over three tax years beginning with the year of distribution. A participant who receives a coronavirus-related distribution may repay the distribution in one or more contributions to any eligible retirement plan to which a rollover contribution can be made within three years of the distribution. The repayment will be treated for tax purposes as a direct rollover (or, if made to an IRA, as a trustee-to-trustee transfer) made within 60 days of distribution.
This new distribution category appears to be optional, although the 10% early distribution tax would not apply to a distribution that qualified under another distributable event (such as severance from employment) and that also met the coronavirus-related distribution definition.
Can Individuals Take a Loan From Their Retirement Plan?
Yes, if their retirement plan offers loans (the ELCA Retirement Plan does not). The CARES Act optionally allows retirement plan administrators to increase loan limits to 100% (up from 50%) of the present value of the participant’s account, to a maximum of $100,000 (up from $50,000). The increase applies to any loan made from a 401(a), 403(b), or governmental 457(b) plan to a qualified individual during the 180-day period beginning on March 27, 2020.
The CARES Act also requires administrators to delay by one year the repayment due date for outstanding retirement plan loans that would have been due March 27 – Dec. 31, 2020. Any subsequent repayments of these loans are required to be adjusted to reflect both the delayed due date and any interest accruing during such delay, and the delay is disregarded for purposes of determining compliance with the five-year term limit.
Only “qualified individuals” are eligible for this loan relief. See the withdrawal FAQ above for eligibility criteria.
What About Individuals Taking Minimum Required Distributions From Their Retirement Plan?
Effective Jan. 1, 2020, the CARES Act waives minimum required distributions (MRDs, also referred to as RMDs) for defined contribution 401(a) plans, 403(b) plans, governmental 457(b) plans, and IRAs for calendar year 2020. The waiver applies to MRDs required to be made in 2020 and to 2019 MRDs that were required to be made by April 1, 2020 (if not already made in 2019). For purposes of determining RMDs after 2020, an individual’s required beginning date is determined without regard to this 2020 waiver.
In addition, the five-year distribution period that applies to certain beneficiaries will be determined without regard to calendar year 2020.
If an eligible rollover distribution paid in 2020 would have been an MRD for 2020 but for the waiver, the distribution is not subject to the direct rollover rules, 20% mandatory withholding requirement, or the 402(f) notice.
How Does the Cares Act Expand Health Plan Coverage Related to COVID-19 Testing and Vaccination? Updated April 14, 2020
The CARES Act made some technical amendments to the Families First Coronavirus Response Act (FFCRA) passed on March 18, 2020:
- Added new language to the requirement that group health plans cover testing for COVID-19. The ELCA Health Plan will pay 100% of costs for FDA-approved COVID-19 testing and the related provider visit to order or administer the test, including an office visit, urgent care visit, or emergency room visit.
- Smoothed the way for group health plans to pay for vaccines, when they are developed, at no cost to the member. The ELCA health plan will cover COVID-19 vaccines, at 100%, the same benefit it applies to other vaccines.
What Other Cost Savings Are Offered to Health Plan Members? Updated April 14, 2020
The CARES Act expands the types of expenses that can be reimbursed from tax-advantaged accounts — including ELCA health savings accounts, personal wellness accounts, and health flexible spending accounts — to include over-the counter drugs without a prescription.
How Does the Cares Act Encourage Greater Charitable Giving?
For taxpayers who take the standard deduction, the CARES Act creates a new “above the line” deduction of up to $300 of annual monetary contributions to religious, charitable, and educational organizations. This change applies for tax years beginning after 2019 and does not sunset after 2020.
For individual taxpayers who itemize, the Act increases the deductible limit for charitable contributions, suspending the 50% of adjusted gross income limitation for cash contributions made in 2020.
For corporations, the Act increases the 10% limitation to 25% of taxable income for cash contributions made in 2020. It also increases the limitation on deductions from 15% to 25% of net income for corporate food donations made during 2020.
Small Businesses and Nonprofit Organizations
What Is the Paycheck Protection Program, or PPP? Updated April 23, 2020
PPP is a loan program designed to keep small businesses, including qualifying nonprofit organizations, afloat during mandated COVID-19 related closures.
This new loan program is based on the existing general business loan program of the SBA and will make potentially forgivable loans available to qualifying small businesses. The loan program is known as the “7(a)” program and not based on the SBA disaster loan program.
Additional detail will be provided as the SBA drafts implementing regulations, which the CARES Act requires to occur within 15 days. For the latest information on the program, visit the SBA website.
Are Churches and Faith-Based Organizations Eligible for a PPP Loan? Updated April 9, 2020
Yes, most nonprofit organizations that generally have fewer than 500 employees are eligible to apply.
The SBA has issued a press release to clarify that all faith-based organizations impacted by Coronavirus (COVID-19) are eligible to participate in the Paycheck Protection Program and the Economic Injury Disaster Loan programs.
Under the language of the CARES Act, there is no exclusion for churches and other religious organizations. According to information from the offices of Senators James Lankford and Marco Rubio, religious organizations may participate in this loan program. The Church Alliance will be advocating with the Small Business Administration to make this program as beneficial as possible for religious organizations.
How Much Can a Church Borrow? Updated April 14, 2020
The CARES Act appropriated $349 billion for PPP loans. Organizations may receive up to 2.5 times their average monthly payroll costs over the prior year (excluding any annual compensation above $100,000 for any person, prorated for Feb. 15 – June 30, 2020) — up to a maximum of $10 million per organization.
Note: Under the CARES Act, “payroll costs” include: payments for vacation, parental, family, medical, and sick leave; allowances for dismissal or separation; group health care benefits (including insurance premiums); retirement benefits; and state or local tax assessed on the compensation of employees, as well as payments of any compensation to an independent contractor that are wages, income, earnings from self-employment, or similar compensation. Payroll costs exclude qualified sick and family leave wages for which a credit is allowed under the Families First Coronavirus Response Act.
Are There Restrictions on How to Use the PPP Loan Proceeds? Updated April 14, 2020
Yes, loan proceeds may be used for:
- Payroll costs, excluding the prorated portion of any annual compensation above $100,000 for any person; however, do not include non-cash benefits such as retirement plan contributions, health plan premiums, insurance premiums, and state or local taxes assessed on employee compensation when calculating the $100,000 cap on compensation
- Mortgage interest and rent payments
- Interest on debt that existed as of Feb. 15, 2020
Does the PPP Loan Have to Be Paid Back? Updated April 14, 2020
Maybe. Repayment terms for the loan will bear interest at a maximum rate of 1% and mature no later than two years after determination of the amount, if any, to be forgiven. Payments under PPP loans may be deferred for six months, during which time interest will accrue. The Small Business Administration is directed to issue guidance on the terms of this deferral. PPP loans have no collateral or personal-guarantee requirements.
Loan repayment will be forgiven under certain circumstances. Specifically, PPP loans can be forgiven to the extent that the loan proceeds have been used for the following costs incurred and payments made during the eight-week period after the loan is made:
- Payroll costs (excluding the prorated portion of any annual compensation above $100,000 for any person)
- Mortgage interest (but not prepayments or principal payments) and rent payments on mortgages and leases that existed before Feb. 15, 2020
- Certain utilities, including electricity, gas, water, transportation, and phone and Internet access for service that began before Feb. 15, 2020
The borrower will have to document payroll costs, mortgage or lease payments, and utilities payments to substantiate the amount of forgiveness. Not more than 25% of the loan can be used for non-payroll costs.
However, note the following important caveats to PPP loan forgiveness:
- The amount forgiven is reduced based on failure to maintain the average number of full-time equivalent employees that were on staff either Feb. 15 – June 30, 2019, or Jan. 1 – Feb. 29, 2020, as selected by the borrower.
- The amount forgiven is also reduced to the extent that compensation for any individual making less than $100,000 per year is reduced by more than 25% measured against the most recent full quarter.
- Reductions in the number of employees or compensation occurring between Feb. 15, 2020, and 30 days after enactment of the CARES Act will generally be ignored to the extent reversed by June 30, 2020.
How Do I Obtain the Loan Forgiveness Application? Updated June 9, 2020
The SBA recently issued the Loan Forgiveness Application
It is worth noting that the Forgiveness Application introduces an “Alternative Payroll Covered Period” for borrowers to calculate forgivable payroll costs. This means if PPP loan proceeds were first disbursed to a borrower in the middle of a pay period, the borrower can elect to start measuring forgivable payroll costs on the first day of the next pay period. The Alternative Payroll Covered Period is not available to all borrowers. The Forgiveness Application states that the Alternative Payroll Covered Period is only available for use by borrowers with a biweekly or more frequent payroll schedule.
Does Cash Housing Allowance Paid to an Employee as Part of Compensation Count Toward Payroll Costs for PPP Loans?
Yes. Payroll costs include all cash compensation paid to employees, subject to the $100,000 annual compensation per employee limitation.
What Are the Provisions to Help Employers With Payroll Taxes?
There are two provisions in the CARES Act related to payroll taxes, which are intended to encourage employers to retain employees and to smooth cash flow concerns related to remission of payroll taxes to the Internal Revenue Service.
Payroll tax deferral period: During March 27 – Dec. 31, 2020, employers (and self-employed individuals as explained below) may defer payment of the “employer share” of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees. Employers generally are responsible for paying a 6.2% Social Security tax on employee wages. For religious organization employers this is generally limited to Social Security taxes on the wages of lay (non-clergy) employees.
It is important to understand that this is not a payroll tax holiday, but a postponement; the 2020 taxes deferred must be paid in the following two years (2021 and 2022). This is intended to allow employers to spread these payroll tax costs over time, which may free up existing cash and other assets to continue to fund essential operations, pay wages, and provide employee benefits. The deferred payroll taxes must be paid over the following two years, with half of the amount required to be paid by Dec. 31, 2021, and the other half by Dec. 31, 2022.
Note: This payroll tax deferral program will not be available to any organization that has had a PPP loan forgiven. Until guidance is issued, the safest course would be to refrain from deferring payroll taxes, if the organization will be seeking to obtain a PPP loan and have it forgiven.
The CARES Act also allows self-employed individuals to defer payment of part of the Social Security taxes they would otherwise owe the IRS. By statute, clergy are considered self-employed for employment tax purposes, generally paying self-employment (SECA) taxes instead of sharing the payment of Social Security taxes with their employers. This provision in the CARES Act would allow clergy to defer paying the employer portion of Social Security taxes (6.2%), but they would still have to timely pay the employee share (also 6.2%) of Social Security taxes as part of their SECA tax payments. The deferred Social Security self-employment taxes must be paid over the following two years, with half of the amount required to be paid by Dec. 31, 2021, and the other half by Dec. 31, 2022.
Employee retention credit: Employers can receive a refundable credit against applicable employment taxes of up to $5,000 per employee in 2020.
For employers with 100 or fewer full-time employees (measured by average employment in 2019), this credit applies if the employer fully or partially suspends operations due to an order from a government authority or if the employer experiences a decline in revenue for any calendar quarter in 2020 of 50% or more compared to the same calendar quarter in 2019. All qualifying wages count toward this credit, whether employees are working or not. For employers with more than 100 full-time employees, the above conditions apply, but the credit only applies to qualifying wages paid to employees who are not working.
The credit amount is 50% of qualified wages (see bullets below) paid to an employee March 13 – Dec. 31, 2020, in each calendar quarter, up to a total of $10,000 per employee for all quarters. In other words, 50% of $10,000 provides a maximum credit of $5,000 per employee. The credit is against an employer’s applicable employment taxes (see bullets below) for each calendar quarter, with any excess refunded to the employer.
Qualified wages are as follows:
- For employers with 100 or fewer full-time employees on average during 2019, qualified wages are those paid to any employee, whether working or not.
- For employers with more than 100 full-time employees on average during 2019, qualified wages are those paid to employees not providing services due to a COVID-19-related suspension of operations or significant decline in gross receipts.
- Wages are only included if paid during the period of March 13 – Dec. 31, 2020.
- Does not include payments made under section 7001 or 7003 of the Families First Coronavirus Response Act (FFCRA) (required paid sick leave or required paid family leave).
- Includes pro-rata portion of the employer’s qualified health plan expenses to the extent such amounts are excluded from an employee’s gross income and properly allocated to those employees with qualified wages.
- Wages included are those defined in Internal Revenue Code section 3121(a) and compensation defined in section 3231(e). Note: Service performed by ministers in the exercise of their ministry is excluded from the definition of employment in Code section 3121.
Applicable employment taxes include the employer portion of Social Security taxes (Code Section 3111(a)), which generally is 6.2% of an employee’s wages, reduced by any of the following credits received by an employer:
- Employment of qualified veterans under Code section 3111(e)
- Research expenditures of qualified small businesses under Code section 3111(f)
- Required paid sick leave under section 7001 of the FFCRA
- Required paid family leave under section 7003 of the FFCRA
Eligible employers include:
- An employer (including a tax-exempt employer) carrying on trade or business during calendar year 2020 that experiences a full or partial suspension of operations due to orders from a government authority limiting commerce due to COVID-19, or that experiences a significant decline (more than 50%) in gross receipts when compared to the same quarter in the previous year.
- All persons treated as a single employer under Code section 52(a) or (b), or Code section 414(m) or (o) are treated as one employer. Note: Organizations eligible to participate in a church plan are treated as a single employer only under Code section 414(c), so this rule should not apply to such organizations.
- Employers receiving a PPP loan are not eligible for this credit.
The credit no longer may be claimed when the full $10,000 per employee qualified wage maximum is reached, or when an employer’s gross receipts for a quarter in 2020 are greater than 80% of the gross receipts for the same calendar quarter in 2019.
What Changes Were Made by the June 5, 2020, Paycheck Protection Program Flexibility Act (PPPFA)? Updated June 16, 2020
Minimum Maturity for New Loans Extended to Five Years. The PPPFA now provides that PPP loans will have a minimum maturity of five years. This change only automatically applies to loans made on and after the enactment of the PPPFA on June 5, 2020, and does not change the maturity of PPP loans originated prior to enactment of the PPPFA.
Extension of “Covered Period” for Provision of Loans. The definition of “covered period” in Section 1102 of the CARES Act previously referred to the period from Feb. 15, 2020 to June 30, 2020. The PPPFA extends the covered period in Section 1102 to Dec. 31, 2020. The term “covered period” is used in different contexts in the CARES Act. In Section 1102 the term is used in the definition of certain terms and is used to establish the period during which the SBA may guaranty PPP loans and to define certain parameters of the PPP.
Extension of “Covered Period” for Forgiveness Purposes. Section 1106 of the CARES Act, which deals with forgiveness of PPP loans, previously defined “covered period” as the eight-week period beginning on the date of origination of a PPP loan. This “covered period” as used in Section 1106 establishes the period during which PPP loan funds spent by a borrower may be eligible for loan forgiveness. The PPPFA amends this definition of covered period to refer to the period of time beginning on the date of origination of a PPP loan and ending on the earlier of the date that is 24 weeks following the date of loan origination, or Dec. 31, 2020. This amendment provides borrowers a longer period of time in which to spend those PPP loan funds which might be eligible for loan forgiveness.
Change to the 75% Payroll Cost Requirement. The CARES Act previously did not provide guidance on the proportion of PPP loan proceeds that must be spent on the various categories of eligible expenses, but in Interim Final Rule 1 the SBA imposed a requirement that at least 75% of the PPP loan proceeds must be spent on payroll costs and at least 75% of the amount of forgiveness must relate to payroll costs. Notably, the PPPFA increases the proportion of PPP loan funds that can be used to pay for non-payroll expenses during the covered period from 25% to 40%. In addition, the PPPFA provides that at least 60% of the PPP proceeds must be used to pay payroll costs “to receive loan forgiveness.”
Rehire and Salary Restoration Safe Harbor. Section 1106 of the CARES Act provided that a borrower’s forgiveness amount could be reduced if its average FTE level for the covered period had decreased from the selected reference period, and if any of its employees were subject to greater than 25% reductions in salary during the covered period as compared to the specified reference period. However, the CARES Act provided a safe harbor that allowed a borrower to escape this reduction in forgiveness if the borrower could eliminate salary reductions or restore its employee count to reference period levels by June 30, 2020. The PPPFA now extends the June 30, 2020 deadline to Dec. 31, 2020.
The PPPFA also adds exceptions which prevent a borrower from having its forgiveness amount reduced:
- If the borrower can document that the borrower was unable to rehire individuals who were employees of the borrower as of Feb. 15, 2020, and that the borrower was also unable to hire similarly qualified employees for unfilled positions on or before Dec. 31, 2020, or
- The borrower can document an inability to return to the same level of business activity as it was operating at before Feb. 15, 2020 as a result of compliance with federal guidelines (from the Secretary of Health and Human Services, the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration) “related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.”
Extension of Deferral Period. The CARES Act allowed for full payment deferment on PPP loans for up to one year, and the SBA’s Interim Final Rule 1 established a six-month deferral. The PPPFA extends the deferment period to the date on which the lender is reimbursed by the SBA for the forgivable portion of the loan, provided that the deferment period must be at least six months and not more than one year. However, if a borrower has not applied for forgiveness within 10 months after the end of its covered period, then the borrower will be required to begin making payments at that time.
Delay of Payment of Employer Payroll Taxes. The CARES Act provided that employers could delay payment of payroll taxes otherwise due in 2020 as long as 50% of such delayed payments were made by Dec. 31, 2021 and the remaining 50% of the delayed payments were made by Dec. 31, 2022. However, Section 2302(a)(3) of the CARES Act had provided that any borrower who received PPP loan forgiveness would be ineligible for the payroll tax delay. The PPPFA removes Section 2302(a)(3) from the CARES Act, thus making PPP borrowers who receive forgiveness eligible for the payroll tax delay. This change is retroactive, effective as if included in the CARES Act, and therefore should be applicable to loans made either pursuant to Section 1102 or Section 1109 of the CARES Act. Note that this change does not amend Section 2301 of the CARES Act, which provides that borrowers who receive a PPP loan are not entitled to the Employee Retention Tax Credit.
The CARES Act Appropriated Funds for Various Other Programs That May Be of Interest to Religious Organizations. What Are the Most Notable?
Department of Health and Human Services: Administration for Children and Families
- Child Care and Development Block Grant: $3.5 billion in grants to states for immediate assistance to child care providers to prevent them from going out of business and otherwise support child care for families
- Community Services Block Grant: $1 billion in direct funding to local community-based organizations to provide a wide range of social services and emergency assistance
Department of Education
- Elementary and Secondary Education: $13.5 billion in formula funding for states to help schools respond to coronavirus and related school closures, meet immediate needs of students and teachers, improve the use of education technology, support distance education, and make up for lost learning time; religious and other private schools are eligible for this funding, under section 18005 of the CARES Act
- State Flexibility Funding: $3 billion in flexible formula funding to be allocated by states based on the needs of their elementary and secondary schools and institutions of higher learning; religious and other private schools are eligible for this funding, under section 18005
- Project SERV: $100 million in targeted funding for elementary and secondary and schools and institutions of higher learning to respond to the immediate needs of coronavirus and the effect on students
- Higher Education: $14.2 billion in funding to institutions of higher education, including targeted funding to minority-serving institutions and HBCUs, to directly support students facing urgent needs related to coronavirus, and to support institutions as they cope with the immediate effects of the virus and school closures