Congressional lawmakers have passed their third and most comprehensive piece of legislation designed to provide economic relief to individuals, corporations, and nonprofit entities impacted by the coronavirus.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) includes several tax measures aimed at providing relief to employers and their workers. It also provides substantial higher education funding and student aid support.
Employer and Tax Provisions
Employee Retention Tax Benefit
An employee retention tax credit will be available for 50 percent of the wages paid by employers to employees during the COVID-19 crisis. The refundable payroll tax credit is available to employers whose:
- Operations were fully or partially suspended, due to a COVID-19-related shut-down order, or
- 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 more than 100 full-time employees, qualified wages are those paid to employees when they are not providing services due to the COVID-19-related circumstances described above. 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. Public institutions, as instrumentalities of a state, are not eligible for the payroll credit.
For small, private institutions 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.
Postponement of Payment for Employer Share of Social Security Tax
Employers can defer payment of the employer share of the Social Security tax they otherwise are responsible for paying with respect to their employees (generally 6.2 percent tax of an employee’s wages). The deferred tax amounts need to be paid over the following two years, with half of the amount due by December 31, 2021, and the other half due by December 31, 2022.
Loans for Small, Private Colleges and Organizations
Private colleges and other (501(c)(3) organizations with fewer than 500 employees are eligible for government-guaranteed loans administered by the Small Business Administration (SBA). There are some questions as to whether student employees currently count as employees for purposes of this loan program, which may effectively put the loan program out of reach for even small institutions. NACUBO and other higher education associations are advocating for the term “employee” to exclude student workers.
SBA Paycheck Protection Program (PPP) loans can be used for payroll support such as employee salaries, paid sick or medical leave, insurance premiums, and mortgage, rent, and utility payments. Borrowing institutions will be required to make good faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19 and that loan funds will be used to retain staff and maintain payroll, lease, and utility payments. The covered loan period is from February 15, 2020, through June 30, 2020. Institutions receiving these loans will not be eligible to also receive the payroll tax credit mentioned above.
- The maximum PPP loan amount will be $10 million through December 31, 2020, and provides a formula by which the loan amount is tied to payroll costs incurred by the organization to determine the size of the loan.
- The maximum allowable interest rate on loans is four percent.
- It allows deferment of loan payments for at least six months and not more than a year (SBA is required to provide guidance to lenders on the deferment process within 30 days).
- Borrowers may be eligible for loan forgiveness for the first eight-week period after the origination date of the loan under certain circumstances.
- Eligible payroll costs do not include compensation above $100,000 in wages.
- Loan forgiveness under this program will not be included in the borrower’s taxable income.
Small institutions also may receive Emergency Injury Disaster Loans (EIDL) from the SBA – an existing small loan and advance program for employers affected by disasters. Institutions may obtain both loans, as long as funds from each loan are used to cover separate expenses. For example, if the PPP loan is used to cover payroll costs, then the EIDL loan must be used to cover other expenses such as rents, utilities, or interest on debt.
For mid-size employers with between 500 and 10,000 employees, the Treasury Secretary, through the Federal Reserve, will provide access to loans with no more than a 2 percent interest rate and no payments due for the first sixth months. Borrowers must self-certify that the loan is necessary to support ongoing operations and that 90 percent of their employees will be retained until September 30, 2020.
Low-Interest Loans for Mid-Size Employers
Colleges and universities, as well as other nonprofits and mid-size businesses, with between 500 and 10,000 employees will have access to loans through the Federal Reserve with interest rates no higher than two percent per year and no payments due for the first six months. Eligible borrowers must self-certify that the loan is necessary to support ongoing operations, that 90 percent of its workforce will be retained until September 30, 2020, and that the borrower will not outsource jobs for two years following repayment of the loan.
Municipal Bond Market Stabilization
The bill includes language that ensures that tax-exempt debt issued by colleges and universities is eligible to be included in any step taken by the Federal Reserve to address turbulence in the municipal bond market. Activity had ground to a halt during the initial coronavirus outbreak and this provision is meant to help stabilize price and trading patterns.
Suspension of Limitations on Net Operating Losses
The 80-percent limitations enacted in the Tax Cuts and Jobs Act on net operating losses (NOLs) will be suspended. Under the CARES Act, NOL arising in a tax year beginning in 2018, 2019, or 2020 can be carried back five years. Further, the provision temporarily removes the taxable income limitation to allow an NOL to fully offset income. Institutions will be allowed to utilize losses and amend prior year Form 990-Ts accordingly.
Student Loan Repayment Benefit
An employer may contribute up to $5,250 annually toward an employee’s student loans, which 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 the date of enactment and before January 1, 2021.
Partial Charitable Deduction for Nonitemizers
For individual taxpayers who do not itemize, an above-the-line deduction will be allowed for charitable contributions of up to $300.
Income Limitations Lifted for Donors Who Itemize
For individuals who itemize, as well as corporations, existing limitations will be increased on charitable deductions. 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. This provision also increases the limitation on deductions for contributions of food inventory from 15 percent to 25 percent.
Expanded Unemployment Benefits
The CARES Act creates a temporary Pandemic Unemployment Assistance Program to provide payment to individuals traditionally not eligible for benefits (e.g., self-employed workers, independent contractors) through December 31, 2020.
- Provides payments to states to reimburse nonprofits, government agencies, and Indian tribes for half of the unemployment benefits costs they incur through December 31, 2020.
- Provides funding to support “short-time compensation” programs, where employers reduce employee hours instead of laying off workers and those employees receive a pro-rated unemployment benefit. This provision would cover 100 percent of the cost employers incur tp provide short-time compensation through December 31, 2020.
- Provides $100 million in grants to states to enact short-time compensation programs to help implement and administer the programs. States that begin their own short-time compensation programs will receive a temporary match of 50 percent of the program cost through December 31, 2020.
Other important provisions for higher education in the legislation include higher education funding and student aid support.
While Congress is adjourned through April, lawmakers are already discussing the potential for another coronavirus response package of legislation. NACUBO, working with members of its Tax Council and other higher education associations, will continue to closely track further legislative and regulatory developments relevant to colleges, universities, and students. Stay up to date on our coronavirus advocacy relief efforts as well as COVID-19 guidance for higher education and COVID-19 employer and tax relief resources.