Houses of Worship and the CARES Act

The new CARES Act signed by President Trump on March 27, 2020 provides potential relief to financially stressed not-for-profit (NFP) organizations.  Congress and the Administration realize NFPs employ approximately 10% of the workforce and constitute about 5% of Gross Domestic Product.  Even though this is a small portion of the economy, there cannot be a true economic recovery without this sector rebounding also.  This blog addresses one specific group of NFP organizations:  houses of worship (called Churches hereafter for the sake of simplicity.)

The activity of clergy has been severely curtailed by recent events, and worship gatherings are limited to ten people in many if not all areas. Even though some Churches are live streaming their services, donations have dropped precipitously in many places.  One of my colleagues remarked it is often a challenge to get people to donate in the first place and the current environment makes this situation even more difficult. Increased unemployment and economic uncertainty will lead to decreased donations putting stress on Churches’ (and other NFP organizations) finances.  

One way to alleviate some of the stress is to apply for a Payroll Protection Plan (“PPP”) loan administered by local banks.  The application form is extremely simple and can be found at the SBA website.  The bank will lend 2.5 times the average monthly payroll and the loans will be forgiven if certain less than onerous conditions are met.  Houses of worship should apply for the PPP loans if they meet  the basic criteria of the program contained right on the loan application itself.

Churches  should also take advantage of payroll tax deferrals as well. Payment of the employer portion of Social Security taxes may be delayed until the end of this year as well.  It is critical to note the Medicare portion ( both employer and employee portions) and the income tax withholding from employees must still be remitted by the normal due date. This is a reasonable requirement since the vast majority of that money is a deduction from the employee’s paycheck and therefore belongs to the employee. Half of the deferred payroll taxes payment may be deferred until December 31, 2020 and the other half until the same time the following year.  Please note this applies to the federal payroll taxes only and not state payroll taxes.  Churches should look for local guidance on this subject.

Finally, Congress has now allowed a $300 charitable contribution deduction to adjusted gross income in 2020.  This means at least a portion of donations made to Churches will be tax deductible.  Previously, charitable contributions were considered itemized deductions and often did not result in a tax benefit since the standard deduction is now so high.   The cap on charitable contributions has also been increased from 60% to 100%  of adjusted gross income.

While this may boost contributions somewhat, Churches and the NFP sector as a whole will need more assistance than this.  The President has recently come out and said he is not opposed to another round of fiscal stimulus.  Perhaps a new stimulus package will be more charitable to charitable organizations.

In any event, this will be an unfolding story, with a lot more to come.