What the New Coronavirus Stimulus Package Means for Churches

In mid-December, the US Congress passed the Consolidated Appropriations Act of 2021 (“CAA” or “Act”), which included another $900 billion in stimulus efforts tied to the COVID-19 pandemic. On December 27, 2020, President Trump signed the CAA into law. This article summarizes a number of provisions in the 5,593-page Act that are important to nonprofit organizations, including churches and church-related or private religious schools.

The CAA creates an extension of the Paycheck Protection Program (PPP) loan program with different eligibility requirements, which are outlined below. An additional $284 billion is available through these PPP Second Draw Loans.

Before taking into account other limiting factors, note that eligible PPP Second Draw Loan borrowers include any:

A prior recipient of a PPP loan may apply for a PPP Second Draw Loan. However, an otherwise eligible applicant must also meet the following criteria:

The maximum PPP Second Draw Loan amount is computed as 2.5 times the average total monthly payment for payroll costs during 2019 or the one-year period before the loan is made, not to exceed $2 million.

For entities that began operations between February 15, 2019, and February 15, 2020, the maximum PPP Second Draw Loan amount is computed by first dividing the total monthly payments for payroll costs by the number of months in which those payroll costs were incurred or paid and then multiplying this quotient by 2.5, not to exceed $2 million.

For PPP loans that do not exceed $150,000, including both PPP loans issued under the CARES Act and PPP loans issued under the CAA, borrowers may obtain forgiveness by submitting a certification to the lender which:

Further, the borrower must certify that it accurately provided the required certification and complied with the PPP loan statute and regulations issued by the SBA. Finally, the borrower must retain employment records that prove compliance for four years and all other relevant records for three years. The borrower may voluntarily provide certain demographic information.

The CAA makes clear that the SBA’s prohibition on making loans to religious organizations does not apply to PPP loans. In addition, the CAA expresses the sense of the Congress that the SBA’s previously issued Interim Final Rule properly clarified that the SBA’s affiliation rules do not apply to churches and religious organizations, where the application of those rules would substantially burden their free exercise of religion.

The CAA repeals the CARES Act provision requiring that any EIDL grant received would reduce the amount of PPP loan forgiveness.

The PPP loan Covered Period is redefined to begin on the date the loan originates (the date of a PPP loan’s first disbursement from the lender to the borrower) and end on a date selected by the borrower that is between the last day of the 8th week following the loan origination date and the end of the 24th week following the loan origination date. This change effectively permits a Covered Period that is between 8 weeks and 24 weeks rather than only permitting a Covered Period of 8 weeks or 24 weeks.

In addition, the Covered Period for PPP loans issued under the CARES Act may now extend to March 31, 2021, instead of December 31, 2020.

The CAA amends the CARES Act definition of qualifying benefits includible in payroll costs to include not only group health insurance benefits but also group life, disability, vision, or dental insurance benefits. This change applies to both PPP loans issued under the CARES Act and PPP loans under the CAA.

For PPP loans made under the CAA, the CAA adds to payroll costs, mortgage interest, rent, and utilities the following additional qualifying expenses:

These additional qualifying expenses are not permitted to apply to the forgiveness of PPP loans obtained under the CARES Act.

The CAA clarifies that for taxable taxpayers, expenditures for PPP loan forgiveness qualifying expenses (i.e., payroll costs, mortgage interest, rent, and utilities) are fully deductible in computing taxable income. This overrides the position taken by US Treasury Secretary Steven Mnuchin and the Internal Revenue Service (IRS).

The CARES Act created a benefit called Pandemic Unemployment Assistance (PUA), which provided unemployment benefits to many individuals who otherwise failed to qualify for state unemployment benefits. Under the CAA, PUA now applies to “weeks of unemployment, partial unemployment, or inability to work caused by COVID-19 . . . ending on or before [March 14, 2021],” which extends the period of eligibility from December 31, 2020. Further, an eligible individual may receive PUA for 50 weeks, up from the 39 weeks permitted by the CARES Act. However, irrespective of the 50-week cap, the program ends effective April 5, 2021.

In addition, the CAA now requires applicants for PUA to provide proof of employment, self-employment, or the planned commencement of employment or self-employment to document eligibility for PUA. Further, recipients are required to recertify each week that they continue to be eligible for PUA.

The CARES Act provided an additional federally funded $600 of unemployment compensation on top of any state unemployment compensation awarded. The CAA extends this benefit from December 26, 2020, through March 14, 2021, but at a reduced amount of $300.

The CAA permits, but does not require, an employer to extend the emergency paid sick leave benefit created by the Families First Coronavirus Response Act (FFCRA) to March 31, 2021, and to continue to receive the credit against payroll taxes permitted by the FFCRA. The bill does not create new eligibility for the benefit.

Similarly, the CAA permits, but does not require, an employer to extend the paid family leave provided under the FFCRA and to receive the credit against payroll taxes permitted by the FFCRA. The bill does not create new eligibility for the benefit.

The CARES Act created an Employee Retention Credit (ERC). The credit was scheduled to expire on December 31, 2020. The CAA makes the following changes to the ERC:

The CARES Act provided that for employers with more than 100 employees, qualified wages with respect to the ERC only included wages paid to employees not providing services. For employers with 100 or fewer employees, qualified wages included wages paid to all employees, regardless of whether an employee provided services. The CAA modifies this threshold to 500 employees, thereby increasing the number of employers eligible for the ERC. The change is effective for calendar quarters after December 31, 2020.

The CAA clarifies that for the purpose of computing the gross receipts of an exempt organization to determine whether an exempt organization is an eligible employer, the term “gross receipts” has the same meaning as the Internal Revenue Code’s Section 6033, the section that governs the filing of Form 990. This is defined as “the gross amount received by the organization during its annual accounting period from all sources without reduction for any costs or expenses.” This is the amount reported on Form 990, Part VIII, Line 12, column (A).

Editor’s note: Except for certain special situations, churches are not required to file an annual Form 990. Until further guidance is issued by the IRS, churches that are not required to file an annual Form 990 may consider using the computation method noted here for nonprofits that file a Form 990 to determine their eligibility as an employer.

The CAA adds a set of qualifying criteria to the ERC and modifies the credit amount in the case of an employer located in a qualified disaster area:

The CAA allocates $54.6 billion for elementary and secondary school coronavirus-related relief. The relief is allocated to each state educational agency with an approved application in the same proportion as its annual federal award. The funds may be used for a wide variety of purposes specified in the CAA.

The CAA provides $4.094 billion to be allocated among the governors of each state with an approved application. This fund provides funding to local public school authorities, including charter schools and higher education institutions, most impacted by the coronavirus and to non-public schools. Non-public schools may use funds granted for a wide variety of purposes enumerated in the statute, but all services or assistance provided, including equipment, materials, and any other items, must be secular, neutral, and non-ideological. A non-public school may not receive a PPP loan made after enactment of the CAA and a GEERF grant.

The CAA authorizes recovery rebates (also known as “economic impact payments,” but more commonly referenced as the individual stimulus payments) in the form of a refundable credit of $600 per individual and $600 for each qualifying child of a taxpayer. This is a decrease from the $1,200 per individual under the CARES Act, but an increase in the “per child” amount, from $500 to $600. This credit is subject to eligibility and phase out per the following schedule (note that the phaseout ceiling increases by $12,000 for each qualifying child for which an economic income payment is received):

The CAA restores the floor for deducting medical expenses to 7.5 percent and makes this change permanent.

The Tax Cuts and Jobs Act of 2017 (TCJA) created an employer credit for up to two weeks of paid family and medical leave. This credit originally expired on December 31, 2019. It was subsequently extended to December 31, 2020. The CAA now extends the availability of this credit to December 31, 2025.

The CARES Act created an exclusion from an employee’s gross income for student loan payments made to an employee or a lender. This provision applied to such payments made before January 1, 2021. The CAA extends this exclusion to such payments made before January 1, 2026.

Notice 2020-65 was issued in response to an August 8, 2020, Presidential Memorandum that in effect permitted employers to defer the collection of an employee’s share of FICA Medicare tax for wages received between September 1, 2020, and December 31, 2020. The notice then required an employer to collect the deferred FICA and Medicare tax from wages paid to the employee between January 1, 2021, and April 30, 2021. The CAA extends the deadline for collecting this tax from April 30, 2021, to December 31, 2021.

The CARES Act created a $300 above-the-line charitable deduction for cash charitable contributions by non-itemizers made during 2020 to public charities other than donor-advised funds described in Section 4966(d)(2) of the IRC and supporting organizations described in Section 509(a)(3) of the IRC. The CAA extends this deduction to cash contributions made after December 31, 2020, and further provides that in the case of contributions made after December 31, 2020, the deduction is $600 for married taxpayers filing a joint return.

The CARES Act removed the adjusted gross income limitation on cash contributions made by individuals to public charities other than donor-advised funds described in Section 4966(d)(2) of the IRC and supporting organizations described in Section 509(a)(3) of the IRC, effectively permitting donors to deduct their 2020 cash contributions to the extent of their taxable income. Similarly, corporations were permitted to deduct cash contributions to the extent of 25 percent of their taxable income instead of 10 percent. The CAA extends these changes in the deductibility of charitable contributions to cash contributions made during 2021.

In general, amounts placed in an HFSA or DCFSA must be expended by the end of the plan year, subject to a permitted grace period. The CAA provides that:

Note that these changes may require changes to your church or organization’s cafeteria plan document. Please seek legal counsel regarding amendments to the plan document.

Elementary and secondary school teachers are permitted to include amounts spent on personal protective equipment, disinfectant, and other supplies used for the prevention of the spread of the coronavirus as deductible educator expenses.

Under a disaster relief provision, the bill provides financial assistance to an individual or household to pay for 100 percent of funeral expenses incurred through December 31, 2020, in connection with the emergency disaster declaration declared by President Trump on March 13, 2020.