In this week’s edition of “Ask an Expert,” we answer reader questions about nonprofits’ eligibility for federal assistance and how to explain the changes in charitable deductions to supporters.
David Thompson, vice president for public policy at the National Council of Nonprofits, Laura MacDonald, president of Benefactor Group, and Peter Heller, founder of Heller Fundraising Group, provide the answers.
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We submitted a Paycheck Protection application. If we have a $15 million endowment, will that affect our application? Will it reduce funding or kick our application out of consideration because they think we have resources?
— Vice president for advancement at a family-services charity
An endowment will not affect your eligibility for benefits, nor will cash on hand or access to credit, Thompson says.
A Paycheck Protection Program loan application requires that the authorized representative sign the form to certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.” It is up to each organization to determine whether the loan is necessary in light of its financial situation.
Is stimulus funding available to all nonprofits or just those that have experienced a drop in revenue of at least 50 percent in the first quarter of 2020?
— An employee at a nonprofit supporting sustainable businesses
It depends on which program, Thompson says.
The Employee Retention Credit provides a refundable payroll tax credit of up to $5,000 for each employee on the payroll when certain conditions are met. The entity had to be an ongoing concern at the beginning of 2020, experienced a whole or partial shutdown, and seen a drop in revenue of at least 50 percent in the first quarter compared with the first quarter of 2019.
There is no limit on the size of nonprofit that can take advantage of this provision.
Thompson says that none of the following benefits require proof of a drop in revenue, although there are other rules and restrictions.
- Nonprofits can delay payment of the employer share of payroll taxes in 2020. Half must be paid at the end of 2021 and the rest at the end of 2022. There are no limitations on this provision.
- Under the Paycheck Protection Program, charitable nonprofits with 500 or fewer employees are eligible for forgivable loans of up to $10 million. To be eligible, a nonprofit must have been in operation on February 15 and had employees for whom it paid salaries and payroll taxes. The loans are capped at 2.5 times the applicant’s average monthly payroll costs. The loans can be forgiven if spent during an eight-week period to pay staff and certain fixed costs such as rent, mortgage, and utilities. An employer that has laid off or furloughed staff will still be eligible for loan forgiveness if it is fully staffed again by June 30.
- The enhanced Economic Injury Disaster Loan (EIDL) program provides emergency grants for eligible nonprofits and other applicants enabling them to receive checks of up to $10,000 within three days, plus loans of up to $2 million. However, nonprofits and others are reporting that the Small Business Administration is limiting payouts under EIDL loans and advances.
There is also a loan fund under development for nonprofits and other employers with up to 10,000 employees. The statute says that under this program, loans would be charged an interest rate of no higher than 2 percent and would not accrue interest or require repayments for the first six months. Nonprofits accepting these midsize business loans must retain at least 90 percent of their staff at full compensation and benefits until September 30. The Treasury Department and Federal Reserve have announced this Main Street Lending Program, but the details are not yet final.
More donors are now eligible to receive a charitable deduction through the Cares Act. What does this mean for fundraisers? What, if anything, should we do differently to reach these individuals?
— A development director in higher education
During this time, fundraisers should emphasize the relationship they have with donors and avoid being transactional in the way they communicate, says fundraising consultant Laura MacDonald.
“I wouldn’t lead with tax deduction if I were asking a donor to consider giving a gift right now,” she says. If anything, charities may mention the changes “as a modest afterthought in an appeal.”
Peter Heller says it makes sense for nonprofits to inform their donors about the changes, but that’s about it.
“They can’t put themselves in the situation of providing tax or legal advice,” Heller says, “but nonprofits can remind donors that they should always consult with their advisers about their philanthropy.”
The new $300 standard deduction allows certain taxpayers to deduct that amount from their adjusted gross income, which reduces their net tax liability. “They will get a deduction for a cash gift of $300. That just isn’t a lot,” says Heller. “I don’t think that this tax law is going to be their main motivator for giving.”
Read our explainer for more details about how the expanded charitable deduction works and who’s eligible. Plus, read a recap of advice from fundraising consultant Peter Fissinger, president and CEO at Campbell & Company, who offers guidance on talking with your donors about the new charitable deduction.
What advice would you add? Comment below to share your ideas. If you have a question you want us to tackle in a future column, send an email to askanexpert@philanthropy.com.
