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.
- 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.
- 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.
- Key point. Some members of Congress are suggesting that a fourth package may be necessary.
- Here is a summary of the provisions in the CARES Act most relevant to churches and church staff.
- Rebates and other individual provisions
- All US residents with adjusted gross income up to $75,000 ($150,000 married), who are not a dependent of another taxpayer and have a work eligible social security number, are eligible for the full $1,200 ($2,400 married) rebate. In addition, they are eligible for an additional $500 per child. This is true even for those who have no income, as well as those whose income comes entirely from non-taxable means-tested benefit programs, such as Supplemental Security Income (SSI) benefits. A few clarifications:
- • 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.
- 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.
- The CARES Act waives the 10-percent early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes made on or after January 1, 2020. In addition, income attributable to such distributions would be subject to tax over three years, and the taxpayer may recontribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions.
- 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.
- The Act increases the amount available for personal loans from a qualified retirement plan from $50,000 to $100,000.
- The Act waives the required minimum distribution rules for certain defined contribution plans and IRAs for calendar year 2020. This provision provides relief to individuals who would otherwise be required to withdraw funds from such retirement accounts during the economic slowdown due to COVID-19.
- Employee retention credit
- This is a credit designed to prevent layoffs and keep workers on the job. Tax-exempt employers are eligible. This is how it works:
- 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.
- 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.
- The credit is capped at $5,000 (maximum income of $10,000 x 50 percent) and is refundable against payroll taxes.
- 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.
- 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.
- 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.
- 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.
- Paycheck Protection Program (PPP)
- 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.
- 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:
- The program provides small businesses, nonprofits, and churches with 500 employees or fewer with federally guaranteed loans to cover payroll and other operating expenses.
- 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.
- 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.)
- 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:
- the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19; and
- they will use the funds to retain workers and maintain payroll, lease, and utility payments.
- 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
- payroll costs (the SBA requires at least 60 percent of the loan eligible for forgiveness be used for payroll costs)
- group health care expenses
- interest on any mortgage obligations
- rent, including rent under a lease agreement
- interest on debt incurred before February 15, 2020
- utilities
- The amount of loan forgiveness is reduced based on an employer’s reduction in workers or wages according to a formula (but any declines between February 15, 2020, and April 26, 2020, do not reduce the amount of loan forgiveness if the employer returns to pre-decline levels by June 30, 2020).
- Any portion of a loan not forgiven is carried forward as an ongoing loan with a term of five years at 1 percent interest.
- This program is retroactive to February 15, 2020, to help bring workers who may have already been laid off back onto payrolls. The loan period ends on June 30, 2020.
- The Act allows complete deferment of loan payments for at least six months and not more than a year.
- The SBA released a loan application on April 1, 2020, that contains a statement that any organization receiving SBA financial assistance, including Paycheck Protection Program loans, must agree not to discriminate in any business practice (including employment and services to the public) on the basis of Parts 112, 113, and 117 of Title 13 of the Code of Federal Regulations. These parts prohibit discrimination on the basis of race, color, national origin, sex, or age by any organization receiving SBA financial assistance. This raises the question of the eligibility of churches that discriminate on the basis of “employment standards” including extramarital sexual relations, sexual orientation, and same-sex marriages to participate in Paycheck Protection Program loans. Are they barred from participating in the loan program on the ground that their employment standards constitute prohibited sex discrimination? Probably not, for three reasons: First, Title VII of the Civil Rights Act of 1964, which bans discrimination in employment on the basis of race, color, national origin, sex, or religion, permits religious employers to discriminate in employment decisions on the basis of religion. Many courts have recognized that this exception allows churches to discriminate in employment on the basis of their biblically rooted employment standards, so long as they do so consistently and do not disproportionately punish members of a protected group. The SBA has issued a document entitled Frequently Asked Questions Regarding Participation of Faith-Based Organizations in the Paycheck Protection Program explicitly affirming this point:
- The Act encourages Americans to contribute to churches and charitable organizations in 2020 by permitting them to deduct up to $300 of cash contributions, whether they itemize their deductions or not.
- The Act increases the limitations on deductions for charitable contributions by individuals who itemize, as well as corporations. For individuals, the 50 percent of adjusted gross income limitation is suspended for 2020. For corporations, the 10 percent limitation is increased to 25 percent of taxable income.
- The Act provides a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the COVID-19 crisis. The credit is available to employers whose (1) operations were fully or partially suspended, due to a COVID-19-related shut-down order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year. The credit is based on qualified wages paid to the employee. For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above. For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order. The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020, through December 31, 2020.
- The Act allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees. Employers generally are responsible for paying a 6.2-percent Social Security tax on employee wages. The provision requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021, and the other half by December 31, 2022. Deferral is not available to employers receiving assistance through the Paycheck Protection Program of the CARES Act.
- In March of 2020 the IRS announced that taxpayers generally have until July 15, 2020, to file and pay federal income taxes originally due on April 15. No late-filing penalty, late-payment penalty, or interest will be due. This means that anyone, including Americans who live and work abroad, can now wait until July 15 to file their 2019 federal income tax return and pay any tax due. IR-2020-58.
- A few weeks later, in Notice 2020-23, the IRS expanded this relief to additional returns, tax payments, and other actions. As a result, the extension now applies to all taxpayers that have a filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020. This includes quarterly estimated tax payments (Form 1040-ES) that would have been due before July 15, 2020, including the first two estimated tax payments due on April 15 and June 15 of 2020. This means that any individual who has a quarterly estimated tax payment due on or after April 1, 2020, and before July 15, 2020, can wait until July 15 to make that payment, without penalty.
- The Act allows employers to provide a student loan repayment benefit to employees on a tax-free basis. Under the provision, an employer may contribute up to $5,250 annually toward an employee’s student loans, and such payment would be excluded from the employee’s income. The $5,250 cap applies to both the new student loan repayment benefit as well as other educational assistance (e.g., tuition, fees, books) provided by the employer under current law. The provision applies to any student loan payments made by an employer on behalf of an employee after date of enactment and before January 1, 2021.
- The Act temporarily suspends payments for federal student loans held by the federal Department of Education through September 30, 2020, and interest is waived for the duration of the suspension. Only loans held by the federal Department of Education are eligible, including loans made under the federal William Ford Direct Loan Program, and some loans made under the Federal Family Education Loan Program (FFLEP).
- Generally, Pell grants are limited to 12 semesters. The CARES Act provides that the Secretary of Education shall exclude from a student’s Federal Pell Grant duration limit any semester (or the equivalent) that the student does not complete due to a qualifying emergency.
- The CARE Act bars involuntary collections of student loans by offsetting an income tax refund or by other means.
- Any homeowner who is experiencing financial hardship—and who possesses either an FHA, VA, USDA, 184/184A mortgage, or a mortgage backed by Fannie Mae or Freddie Mac—is eligible for up to six months’ forbearance on their mortgage payments, with a possible extension for another six months. At the end of the forbearance, borrowers can work within each agency’s existing programs to help them get back on track with payments, but they will have to pay missed payments at some point during the loan, so if borrowers can pay, they should continue to do so.
- Renters who have trouble paying rent also have protections under the bill if they live in a property that has a federal subsidy or federally backed loan. Owners of these properties cannot file evictions or charge fees for nonpayment of rent for 120 days following enactment of the bill, and cannot issue a renter a notice to leave the property before 150 days after enactment. After this period renters will be responsible for making payments and getting back on track, so they should continue to make payments if they’re financially able to do so. Renters who receive housing subsidies, such as public housing or Section 8, and who have had their incomes fall should recertify their incomes with their public housing agency or property owner because it may lower the rent they owe.
- The Act includes a 60-day foreclosure moratorium starting on March 18, 2020, for all federally backed mortgage loans. Borrowers with FHA, VA, USDA, or 184/184A loans, or loans backed by Fannie Mae and Freddie Mac, will not see foreclosure actions and cannot be removed from their homes due to foreclosure during that time.
- Many Americans do not have a Real ID-compliant identification (which will be required to board commercial airlines) and are concerned about going to a crowded department of motor vehicle department before the October 1, 2020, deadline. There is no need to visit a DMV just to obtain a REAL ID by October 1, 2020, because the deadline was extended one year, until October 1, 2021.
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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