The information provided below has been compiled by the Western PA Conference Treasurer’s office from publicly available sources. It is not intended to provide legal advice or direct the management decisions of local churches; rather it is provided to highlight provisions that may be most germane to our local churches, their employees and members. Each church and individual must assess their own situation and make decisions accordingly.
On December 27, 2020, the Consolidated Appropriations Act (CAA) was signed into law. This Act includes Additional Coronavirus Response and Relief (ACRR) provisions that modified the Small Business Administration’s (SBA) Paycheck Protection Program (PPP).
The Paycheck Protection Program (PPP) is now open for first-time borrowers (First Draw Loans) and now allows certain eligible borrowers that previously received a PPP loan to apply for a Second Draw PPP Loan. To be eligible for a Second Draw PPP Loan, borrowers must be able to demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020 (amongst other requirements).
First or Second Draw PPP Loans can be used to help fund payroll costs, including benefits. Funds can also be used to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.
To be eligible for loan forgiveness for First or Second Draw loans, borrowers must:
The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law on March 27, 2020. It is the third relief package enacted by Congress in response to the COVID-19 outbreak, and the most extensive of the three pieces, providing $2.2 trillion in relief funds to state governments, business, non-profits and individuals. The first piece, the Coronavirus Preparedness and Response Supplemental Appropriations Act provided $8.3 billion in emergency funds to federal agencies. The Families First Coronavirus Response Act (“FFCR Act”) requires employers to provide paid sick leave or expanded family and medical leave relative to specific COVID-19 reasons. Most recently, the Paycheck Protection Program Flexibility Act of 2020 was enacted on June 5, 2020, essentially giving Borrowers more opportunities to utilize their entire loan proceeds, as well as loosening other restrictions.
Most of the information presented below is specific to the CARES Act. Where applicable the FFCR Act will be referenced.
On 4/24/20, legislation was signed that provided additional funding to the PPP and EIDL programs. As of 6/12/20, PPP funds were still available – check with your local bank/lender to determine if they are still accepting applications.
This piece of the CARES Act provides a safety net for small businesses with less than 500 employees, creating an incentive to keep those employees working. It will effectively work like a federal grant program, such that the Employer (churches in our case) will NOT ever have to repay the loans, so long as the funds are fully utilized to pay qualified payroll and non-payroll expenses.
Key provisions of the Paycheck Protection Program:
Please be advised that as of 6/5, legislation was enacted that will benefit PPP Borrowers (see email correspondence below). As such, it is advisable that Borrowers wait for further clarification before they return any funds or initiate the Forgiveness Application process.
There are strong incentives for the Employer to not lay employees off; primarily forgiveness of the total amount of the loan (i.e., don’t ever have to be repaid).
If the Employer lays off any employees or reduces employee pay by more than 25% during the loan period, the amount of the loan which will be forgiven will be reduced proportionately. HOWEVER, if the Employer restores the reduction of wages and/or employees by December 31, 2020, the loan forgiveness WILL NOT be reduced.
Any funds not used for qualified expenses will not be forgiven. As of 6/16/2020, the SBA guidelines indicate that loans issued prior to 6/5/2020 have a maturity of 2 years. Loans issued after June 5 have a maturity of 5 years. All loans have an interest rate of 1%. Repayments of unforgiven amounts can be deferred for 6 months.
The loans will be provided through the Small Business Administration (“SBA”) which has waived its limitations on providing loans to religious organizations. SBA-approved lenders (banks) will facilitate the application and loan payment process.
No more than 40% of the loan forgiveness amount may be used for non-payroll costs. At least 60% of the loan forgiveness amount SHALL be used for payroll costs. Again, payroll costs include gross wages, healthcare benefits and retirement benefits. If the funds are used for non-qualified expense (i.e., for things other than payroll and qualified benefits, mortgage interest, rent, or utilities), the SBA will direct the borrower to repay those amounts. Further guidance from the SBA on loan forgiveness may be forthcoming.
If you receive a PPP Loan, it may be prudent to deposit the funds into an account other than your primary checking account, and then draw down the funds as you incur qualified expenses. It may also be prudent to “escrow” a portion of these funds should the loan not be 100% forgiven.
On June 5, 2020, the President signed into law the Paycheck Protection Program Flexibility Act of 2020 (PPPFA). The PPPFA makes several beneficial modifications to the initial forgiveness guidelines. The most significant change being an extension of the covered period from 8 to 24 weeks. GCFA has issued a detailed summary of the PPPFA, which can be found here
As of 6/16/20, the SBA has released the Loan Forgiveness Application and Instructions for Borrowers form. Additionally, they have released an EZ Loan Forgiveness Application and Instructions for Borrowers form. The SBA Loan Forgiveness section of its website can be found here.
The SBA has provided numerous updates to its “Interim Final Rules” and other forms and guidance related to the Paycheck Protection Program, including the most recent changes to the Loan Forgiveness provisions. The Lender Forms and Guidance section of the SBA Paycheck Protection Program website includes links to the most current versions of the documents and other relevant information.
As of 5/27/2020, the SBA updated its rolling FAQ for PPP loans. Additional guidance will likely continue from the SBA and banks on the forgiveness process, this FAQ addresses key items regarding payroll related costs and the timing of the 8-week usage period. Please read this document in its entirety with particular interest on questions 7, 15, 16, 20, 31, 32 (which specifically allows for the inclusion of housing allowance in payroll costs) and 36. Items 37, 38 and 39 added in the 4/29 update, which comment further on the liquidity certification and the SBA review process. On 5/13/2020 the SBA added question #46 which extends a safe harbor to borrowers that received PPP loans with an amount of less than $2 million. These borrowers will be deemed to have made the required certification concerning the necessity of the loan request in good faith. Correspondingly, the SBA has extended the repayment safe harbor to 5/18/2020 for organizations choosing to repay their loan in full.
As of 5/14/2020, Wespath and GCFA have updated its FAQ addressing PPP loan forgiveness questions and other impacts to United Methodist organizations. As indicated in this FAQ, additional guidance from the SBA will be forthcoming; however, the information is quite useful in terms maintaining a working knowledge of the loan program and developing a process for administering your loan proceeds.
On 4/8/2020, Wespath and GCFA released a document providing guidance for United Methodist Local Churches on the Paycheck Protection Program Borrower Application Form.
On 4/3/2020, the SBA released a Faith-Based Organizations FAQ confirming that they were eligible to participate in the Paycheck Protection Program. This was an example of the inconsistent messaging amongst the banks when approached by churches.
PPP Update - Legislative Changes - Sent June 4
Paycheck Protection Program Application - Additional Information - Sent April 3rd
UPDATE – Paycheck Protection Program / SBA Press Release - Sent April 1st
CARES Act Stimulus Package for Churches - Sent March 30th
Employers have an option to defer the payment of their share of the Social Security tax (6.2% of applicable wages) from March 27 through December 31, 2020. This is not a payroll tax holiday, but a postponement. Taxes deferred can be paid in 2021 (50%) and 2022 (50%).
Employers can receive a refundable credit against applicable employment taxes, of up to $5,000 per employee in 2020. Employers receiving a PPP loan are not eligible for this credit.
Churches are also eligible to apply to the SBA for a loan under their EIDL program. It should be noted that this is a true loan, for which there is no forgiveness. With the exception of a potential $10,000 Emergency Cash Grant, the entire amount of the loan must be repaid. The current interest rate for non-profits is 2.75%, with a repayment term of up to 30 years. It is advisable that a church exhaust the PPP loan process before turning to the EIDL.
The baseline for the stimulus payments are $1,200 for individuals, and $2,400 for those married filing jointly. An additional $500 will be added for each dependent child under the age of 17.
Payments will phase out when adjusted gross income (“AGI”) exceeds $75,000 ($150,000 joint filings); the amounts are completely phased out for single filers when AGI exceeds $99,000; $146,500 for head of household filers, and $198,000 for joint filers with no children.
The government will calculate and remit your stimulus payment based on your most recently filed tax return (2018 or 2019). No application is required.
Online calculators used to estimate individual payments have been provided by a number of sources. One such calculator is provided by Forbes.
Changes made to the provisions for charitable contributions will now allow for up to $300 above and beyond the standard deduction. For those who itemize, the cap limiting charitable contributions to 50% of a person’s income has been lifted for 2020. These provisions will not apply to the 2019 tax year. They will only apply to 2020.
Effective January 1, 2020, Required Minimum Distributions (RMDs) for defined contribution 403(b) plans and 401(k) plans have been waived for calendar year 2020. This includes 2019 RMDs that are required to be made by April 1, 2020 and 2020 RMDs required to be made by April 1, 2021.
Qualified coronavirus-related distributions (up to $100,000) are exempt from the 10% early distribution penalty; however, they are not tax-free. Consult with your benefit plan administrator and tax advisor for the qualification and taxation details.
For a 180-day period beginning March 27, 2020, increased limits for plan loans to qualified individuals will be available; maximum loan amounts are increased to $100,000 (from $50,000) and up to 100% (from 50%) of the account value. Consult with your benefit plan administrator for qualification and repayment details.
Through a temporary Pandemic Unemployment Assistance (PUA) Program that will run through the end of 2020, funds have been made available to provide payments to individuals who are not traditionally (e.g., independent contractors, non-profit employees) eligible for unemployment benefits and who are unable to work as a direct result of COVID-19. The State of PA has a new page specific to filing a PUA claim: https://www.uc.pa.gov/unemployment-benefits/file/Pages/Filing-for-PUA.aspx
Each state has its own guidelines and processes for administering claims, determining eligibility and awarding benefits. Individuals should consult their state unemployment department for information. The link to Pennsylvania's information is www.uc.pa.gov/Pages/default.aspx
Full-time employees of qualified employers may be entitled to an additional two weeks (80 hours) of paid sick time if they are unable to work or telework because of the COVID-19 pandemic. Benefits for part-time employees are reduced, based on the average number of hours the employee works in a two-week period.
Employees of qualified employers may also be eligible for up to 12 weeks of protected leave to care for children under the age of 18 whose schools or childcare providers have been closed due to the COVID-19 pandemic.
Employers may potentially use tax credits to recover these added costs. However, as mentioned in the “Provisions Applicable to Churches” section above, this may not be allowed in tandem with a forgivable PPP loan.