The CARES Act: New Tax Provisions for Charitable Deductions

The new Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) includes numerous provisions that affect nonprofit organizations, including emergency loans and tax relief.

LOAN PROVISIONS

The loan provisions allow nonprofits and for-profits to obtain cash to keep staff and continue operations. The terms and application processes are still being developed and each program has its own details. The National Council of Nonprofits has created a useful summary that can be accessed here.

CHARITABLE GIVING

Beginning in 2020, there are tax benefits for charitable contributions paid in cash. The contributions must be made to qualifying charitable organizations (which are generally 501(c)(3) and certain other organizations). Contributions to a donor advised fund or to a supporting organization do not qualify.

Individuals that do not itemize deductions can deduct up to $300 of qualifying cash donations when those donations are made in the current year (and not carried over from another tax year). Individuals who itemize deductions can elect to deduct an amount up to their contribution base, which is similar to adjusted gross income, for qualifying cash contributions paid in 2020.

A corporation can elect to deduct an amount up to 25% of its taxable income for qualifying cash contributions paid in 2020. For S corporations and partnerships, the election is made by the partner or shareholder.

Charitable contributions that are not paid in cash or that are not paid to qualifying charitable organizations remain subject to the same limitations as under prior law. Taxpayers first take into account and deduct the nonqualifying charitable contributions and then the qualifying cash contributions are taken into account and deducted. Contributions exceeding the deductible limits can be carried over for five years.

The cap on deductions for food donations from corporations is raised from 15% to 25% of taxable income. For other taxpayers the cap is raised from 15% to 25% of the aggregate net income of all trades or businesses making the food donations.

PAYROLL TAXES: CREDITS AND PAYMENTS

Organizations with operations suspended due to a shut-down order or whose gross receipts are less than half of what they were in the same quarter of the prior year may be eligible for a refundable payroll tax credit (up to $5,000 per employee). For employers with more than 100 employees in 2019, the credit applies to employees who are not providing services. For employers with 100 or fewer employees in 2019, the credit applies to all employees. Employers accepting certain emergency SBA loans will not be eligible. CARES also allows delays in making payments of the employer’s share of payroll taxes until 2021 and 2022.