What the CARES Act Means for Churches and Church Staff

How to navigate the government’s $2.2 trillion stimulus plan responding to COVID-19’s economic fallout.

Editor’s Note: Additional updates regarding the CARES Act and its various provisions can be found on Church Law & Tax’s coronavirus coverage page.

The 900-page, $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act became law on March 27, 2020. It is the third package enacted by Congress in response to the COVID-19 (coronavirus) outbreak. It follows:

Richard Hammar’s April 2, 2020, webinar on key provisions of the CARES Act is now available to view On-Demand.

  1. The Coronavirus Preparedness and Response Supplemental Appropriations Act (March 6, 2020), which provided $8.3 billion in emergency funding for federal agencies to respond to the coronavirus outbreak.
  2. The Families First Coronavirus Response Act (March 18, 2020), which requires certain employers, including churches, to provide their employees with paid sick leave or expanded family and medical leave for specified reasons related to COVID-19. These provisions, which can be fully reimbursed by the government, will apply from April 1, 2020, through December 31, 2020.
  3. Key point. Some members of Congress are suggesting that a fourth package may be necessary.
  4. Here is a summary of the provisions in the CARES Act most relevant to churches and church staff.
  5. Rebates and other individual provisions
  6. • Any child who is a qualifying child for the purposes of the Child Tax Credit is also a qualifying child for the purposes of the recovery rebate. In general, a child is any dependent of a taxpayer under the age of 17. • Individuals with $0 of income are eligible for a rebate so long as they are not the dependent of another taxpayer and have a work-eligible Social Security Number. • College students are eligible for a recovery rebate only if they are not considered a dependent of their parents. Generally, full-time college students under the age of 24 are considered a dependent if their parent(s) provide more than half of their support. Rebates sent via direct deposit will take a few weeks. • Rebates sent via checks may take a few months.
  7. Key point. For the vast majority of Americans, no action on their part will be required to receive a rebate check since the Internal Revenue Service (IRS) will use a taxpayer’s 2019 tax return if filed (or their 2018 return if they haven’t filed their 2019 return). This includes many individuals with very low income who file a tax return despite not owing any tax in order to take advantage of the refundable Earned Income Tax Credit and Child Tax Credit. Key point. To illustrate, a family of four is eligible for a $3,400 rebate. Key point. The rebate is treated like other refundable tax credits, such as the child tax credit and earned income tax credit, and is not considered taxable income. Key point. The rebate amount is reduced by $5 for each $100 that a taxpayer’s adjusted gross income (AGI) exceeds the phase-out threshold. The threshold is $75,000 for single taxpayers and $150,000 for married persons filing jointly. The amount is completely phased-out for single filers with incomes exceeding $99,000, $146,500 for head of household filers with one child, and $198,000 for joint filers with no children.
  8. Key point. A coronavirus-related distribution is one made to an individual: (1) who is diagnosed with COVID-19, (2) whose spouse or dependent is diagnosed with COVID-19, or (3) who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the Treasury Secretary.
  9. Employee retention credit
  10. This is a credit designed to prevent layoffs and keep workers on the job. Tax-exempt employers are eligible. This is how it works:
  11. Eligible employers are allowed a credit against employment taxes (FICA, income tax) for each quarter of 50 percent of the qualified wages of each employee (up to $10,000) for such calendar quarter during the COVID-19 emergency.
  12. The fully refundable credit would be available to any business or non-profit that has a furloughed or reduced workforce as a result of a forced closure due to a federal, state or local government directive or as a result of quarantining of employees. The credit would also be available to any business that has seen a 50 percent drop in gross receipts when compared to the same quarter last year.
  13. The credit is capped at $5,000 (maximum income of $10,000 x 50 percent) and is refundable against payroll taxes.
  14. A special rule applies to eligible small employers (those with 100 employees or less) that provides a 50-percent credit for all wages paid, regardless of whether employees are furloughed or not.
  15. The credit would be available to businesses that do not receive Small Business Administration loans. Business owners would be able to choose whether an SBA loan or employee retention credit is better suited to their situation.
  16. The term ‘‘eligible employer’’ means any employer—(a) which was carrying on a trade or business during calendar year 2020, and (b) with respect to any calendar quarter, for which the operation of the trade or business is fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19.
  17. Key point. The CARES Act provides that if an eligible employer receives a forgivable loan under the Paycheck Protection Program (see below) it is not eligible for the employee retention credit under this section.
  18. Paycheck Protection Program (PPP)
  19. Key point. Most churches are unfamiliar with US Small Business Administration (SBA) loans, including this newly created Paycheck Protection Program. For assistance, contact your nearest Small Business Development Center (SBDC). The SBA website lists local centers and has more information about approved lenders.
  20. The Act establishes a new SBA loan program called the Paycheck Protection Program for small employers (including nonprofits and churches) to help prevent workers from losing their jobs and small businesses from failing due to economic losses caused by the COVID-19 pandemic. Here is how it works:
  21. The program provides small businesses, nonprofits, and churches with 500 employees or fewer with federally guaranteed loans to cover payroll and other operating expenses.
  22. Loans are available from any lender approved to participate in SBA loans, as well as additional lenders approved by the US Department of the Treasury.
  23. Applicants can apply for this loan until August 8, 2020. (Editor’s Note: Congress passed another bill—which President Trump signed on July 4, 2020—that extends the deadline for PPP loan applications to August 8, 2020. Unfortunately, it’s not yet clear what the new application deadline means for the various dates and deadlines associated with the program, but future guidance from the Treasury Department and SBA should shed light on any changes resulting from the extension.)
  24. To be eligible, the small employer must have been harmed by the pandemic between February 15, 2020, and June 30, 2020. The Act requires eligible borrowers to make a good-faith certification that:
  25. The program provides loans of up to 250 percent of an employer’s average monthly payroll costs for the one-year period preceding the loan (excluding compensation over $100,000). Here are two examples provided by the SBA illustrating how to calculate the maximum amount of a loan:

Example 1: No employees make more than $100,000 Annual payroll: $120,000 Average monthly payroll: $10,000 Multiply by 2.5 = $25,000 Maximum loan amount is $25,000 Example 2: Some employees make more than $100,000 Annual payroll: $1,500,000 Subtract compensation amounts in excess of an annual salary of $100,000: $1,200,000 Average monthly qualifying payroll: $100,000 Multiply by 2.5 = $250,000 Maximum loan amount is $250,000

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Related Topics: Benefits | Employment | Staff Posted: March 29, 2020

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