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.
Information is forthcoming from the federal, state and local government agencies on a daily, if not intraday, basis. We will endeavor to update this content as additional information becomes available; however, please recognize this is a very fluid situation
Links to resources are embedded within this communication; links to CARES Act summaries from Wespath and GCFA and other resources, are at the bottom of the page.
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 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 will provide additional funding to the PPP and EIDL programs. If you have filed a PPP application since April 3, 2020, and have not been approved or funded, please continue to monitor the status of your loan application with your bank / lender. Also, if you have not filed an application, it may not be too late to do so as it is possible that the government may continue to provide funds to support small businesses.
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 5/22, Congress is considering changes to program provisions, such as extending the 8-week cover period and eliminating the 25% limitation on non-payroll costs. 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).
As of 4/6/2020, the banks have been inconsistent in terms of allowing or not allowing the amounts paid to individuals, and reported on a 1099, when calculating the Borrower’s Average Monthly Payroll figure. It is best to have this conversation with your bank in terms of your specific situation.
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 June 30, 2020, the loan forgiveness WILL NOT be reduced.
Any funds not used for qualified expenses will not be forgiven. As of 4/3/2020, the SBA guidelines indicate that unforgiven loan amounts will have a repayment term of 2 years, with 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. It is worth contacting your bank to see if they are an SBA-approved lender; and confirming with them any questions you have on the application form and any supporting documents they need upon filing.
Because each bank/lender has their own application process, it is a good idea to reach out to your bank/lender to determine how to complete an application and to determine what documentation they require (e.g. payroll tax reports (941s or 944s, W-2s), internal payroll reports for prior 12 months, financial statements).
No more than 25% of the loan forgiveness amount may be used for non-payroll costs. At least 75% 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.
As of 5/18/20, the SBA has released the Loan Forgiveness Application and Instructions for Borrowers form. They have also added a “Loan Forgiveness” section to its website (https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program#section-header-8) with some additional information and guidance. Of particular interest are the first 2 bullet points indicating that Borrowers can calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers payroll cycles; and the flexibility to include eligible payroll and non-payroll expenses incurred during the eight-week period after receiving their PPP loan.
The SBA has released an Interim Final Ruling on the Requirements for Loan Forgiveness. In addition to providing more detailed information on loan forgiveness, this document provides a few examples that may be helpful for any church that made reductions to staff or salary. The SBA also provided additional information on the loan review process with the release of the Interim Final Rule – SBA Loan Review Procedures and Related Borrower and Lender Responsibilities.
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.
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 30, 2020. This is not a payroll tax holiday, but a postponement. Taxes deferred can be paid in 2021 (50%) and 2022 (50%).
The Payroll Tax Deferral program will be unavailable to any organization that has a PPP loan forgiven. As such, it would be prudent to refrain from deferring payroll taxes if your intent is to pursue the PPP, and have it forgiven.
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.