In light of the economic impact of the coronavirus, the U.S. Senate just passed a $2 trillion relief act. Here are the five items that affect nonprofits.
On Wednesday night the U.S. Senate passed the CARES Act, with nearly $2 trillion of relief meant to limit the economic impact of COVID-19 (and subsequent quarantine measures) on the country. It is expected to pass the House today and be signed promptly by President Trump.
As proposed legislation has been bandied about, it’s been hard to keep up with the provision and stipulations that are or are not included in the final bill. While there is much more in the bill that could affect certain nonprofits—including a payroll tax credit for those drastically affected by the shutdowns and the possibility of nonprofits getting loans from the Small Business Administration—here are the top five items that will apply to most nonprofit leaders. Some of them affect the nonprofit as an employer; some affect the giving capacity (or incentives) of lower-dollar donors; and some affect incentives to give for major donors.
1. Payroll tax deferral.
Think of this as a sort of interest free loan. All employers, including nonprofits, can defer payroll tax payment of employer-side payroll taxes until 2021 and 2022. 50% of payroll taxes for 2020 would be due Dec. 31, 2021, and the second half is not due until Dec. 31, 2022. This provision also applies to independent contractors who pay their own payroll taxes (though only applying to the employer-side half).
2. Universal Charitable Tax Deduction—above the line.
All tax filers, including those taking the standard deduction, can take a deduction of up to $300 for charitable gifts. This applies only to 2020 tax filings. Gifts to donor-advised funds or private foundations, however, do not qualify. Since ordinarily only 12% of households itemize and qualify for a charitable deduction, this means that many more of your donors will qualify to receive a tax break for giving (especially lower-dollar and mid-tier donors). You will want to prepare messaging for your lower-dollar donors to inform them of this change.
3. Lifting the income limit on charitable tax deduction for itemizers.
For this year only, there is no limit on the amount of charitable contributions that can be deducted income (ordinarily the limit is 60% of Adjusted Gross Income). This may make increasing contributions during calendar year 2020 an appealing option for some major donors. Again, you will want to prepare messaging for your major donors to inform them of this change.
4. Relief Payments to Individuals.
All individuals with 2018 or 2019 (if already filed) taxable income below $75,000 ($150,000 for couples) will receive checks for $1,200 ($2,400 per couple) plus $500 per dependent child. While we wouldn’t recommend donor messaging around asking for part of that relief check, it is important to know that you may have a pocket of donors with stable employment and relatively high income who suddenly find themselves with extra money on their hands in a couple of months. These checks will not be taxable. There’s a lot of speculation about when these checks will arrive, but it is likely to take a minimum of 3 weeks (and much longer for those who have not utilized direct deposit for tax refunds in the past).
5. Temporary waiver of Required Minimum Distribution from retirement accounts.
Many nonprofits market distributions from IRAs or 401(k)s as a powerful giving vehicle for people age 72 and up, because donors can save on taxes while satisfying RMD rules on their retirement accounts through making QCDs (qualified charitable distributions). The CARES Act waives the RMD rule for 2020, so this particular incentive to give is not available this year. That said, keep in mind that RMDs are averaged over a five-year period. So, while the requirement does not apply in 2020, giving this year will relieve the required distribution next year (and in subsequent years). So the incentive to give out of 401(k)s may be softened, but not entirely eliminated.
Almost certainly you, like most nonprofit organizations, are worried and scrambling about how to make revenue projections this year. These tax code provisions are meant to minimize the uncertainty and abate the risk you are facing. It is worth taking some time to acquaint yourself with these changes and determine how you can capitalize on them. Familiarize yourself with the way the CARES Act is helping donors in order to help you—and then familiarize your donors.
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Edit: a previous version of this article stated that the universal charitable deduction was a permanent change to the tax law.
3 thoughts on “Top 5 changes for nonprofits from the COVID legislation”
Nice exec summary. Thanks for the concise clarity!
That’s a helpful summary Matthew. Thank you.