This Legal Alert addresses topics related to the COVID-19 pandemic that are most relevant to nonprofits. In this rapidly-changing environment, please contact your local Pro Bono Partnership office for the most current information. Please also bookmark the Pro Bono Partnership COVID-19 Nonprofit Resources page for information we have published or compiled.
The $300 Above-the-Line Charitable Contribution Deduction Explained
As you likely heard, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act created a new, $300 above-the-line charitable contribution deduction for individuals. After President Trump signed the CARES Act into law on March 27, 2020, numerous, contradictory summaries were published about exactly who would be eligible for this deduction.
On April 23, 2020, The Joint Committee on Taxation (JCT), nonpartisan committee of the United States Congress, issued its analysis of the tax provisions of the CARES Act. The JCT’s report, which does not have the force of law but nonetheless is influential, clarified that:
- An eligible individual can claim an above-the-line deduction, in an amount not to exceed $300, for qualified charitable contributions made during a taxable year that begins in 2020. That is, the contribution must be made in the taxpayer’s tax year that begins in 2020.
For most individuals, the tax year is the calendar year. For those individuals, eligible above-the-line contributions must be made in 2020.
- The $300 above-the-line deduction is not available to individuals who elect to itemize their deductions.
- The $300 limit applies to the tax-filing unit. Thus, for example, married taxpayers who file a joint return and do not elect to itemize deductions are allowed to deduct up to a total of $300 in qualified charitable contributions on the joint return.
- A qualified charitable contribution is a cash contribution for which a deduction paid to a charitable organization described in Internal Revenue Code Section 170(b)(1)(A), other than contributions to (1) a supporting organization described in Section 509(a)(3) or (2) for the establishment of a new, or maintenance of an existing, donor advised fund (as defined in Section 4966(d)(2)). Contributions of noncash property, such as securities, are not qualified contributions.
We will need to see if the IRS agrees with JCT’s reading of the CARES Act.
Federal DOL Issues Unemployment Comp Guidance for Reimbursing Employers
[Update: On August 3, 2020, President Trump signed into law the Protecting Nonprofits from Catastrophic Cash Flow Strain Act of 2020. As a result of this new law, a reimbursing nonprofit will no longer be required to first reimburse a state unemployment insurance trust fund (UITF) for 100% of unemployment comp (UC) benefits that the state has paid to the nonprofit’s employees. The nonprofit will be required to reimburse the UITF just 50%. We expect the Department of Labor to issue an updated version of Unemployment Insurance Program Letter No. 18-20, which will be posted at https://wdr.doleta.gov/directives.]
On April 27, 2020, the Department of Labor (DOL) issued Unemployment Insurance Program Letter No. 18-20, which explains how nonprofits that do not contribute to a state unemployment insurance trust fund (UITF) will be partially reimbursed by the federal government for the increased cost of unemployment comp (UC) benefits caused by COVID-19.
A nonprofit that does not contribute to a state’s UITF reimburses the fund for the UC benefits that the state has paid to the nonprofit’s employees who have been separated from employment or had their hours of work reduced. The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act includes a provision that reduces a reimbursing nonprofit’s UC obligation by 50%.
The DOL’s guidance explains that:
- The nonprofit must first reimburses the state UITF for the full amount of UC benefits that the state has paid to the nonprofit’s employees. The fund then reimburses the nonprofit 50% of that amount. It is no clear whether states will require employers to file a reimbursement claim.
- The reimbursements to the nonprofits apply to all payments made in lieu of contributions for weeks of unemployment beginning on or after March 13, 2020 and ending on or before December 31, 2020, even if the unemployed individual is not unemployed as a result of COVID-19.
- The nonprofit is not required to reimburse the UITF for the special pandemic UC benefit for which the federal government pays 100% of the cost. This would include the enhanced $600 benefit, the extra up-to-13 weeks of UC benefits if an employee is still unemployed after 26 weeks, and the up-to-39 weeks of UC benefits paid the employees who are not eligible for state UC benefits.
To learn more, including the reaction from the nonprofit community to the two-step process for reimbursement, see Shipman & Goodwin’s “DOL Clarifies CARES Act Unemployment Rules for Nonprofits and Municipalities” and National Council of Nonprofits’ “DOL Issues Breathtakingly Cruel Guidance Inflicting Billions in Immediate Costs onto Charitable Organizations Struggling to Serve Their Communities.” It is possible that lobbying efforts might result in the DOL reconsidering the two-step requirement or Congress and the President taking steps to overturn the DOL’s position.
New Jersey Law
New Jersey Nonprofits Should Stay Up to Date with State Charitable Filings
- Charities Registration: New Jersey nonprofits registered with the New Jersey Charitable Registration and Investigation Section should know that while there is no special COVID-19-related extension of time for nonprofits to file their annual registration renewal, the Section does provide a standard 180-day extension for nonprofits that bring in gross contributions of over $10,000 during a fiscal year and are currently up to date and compliant with their filings. Nonprofits must submit a request for a filing extension by the date that their registration renewal would otherwise have been due. Failure to do so could result in late fees. Nonprofits registered with the Section that bring in under $10,000 in gross contributions during a fiscal year are not eligible for an extension.
Eligible nonprofits must request the standard 180-day extension for filing their renewals online through the Charities Registration portal. For more information, visit the Section’s website.
- Games of Chance: Due to the current COVID-19 crisis, the New Jersey Legalized Games of Chance Control Commission has announced accommodations for nonprofits registered with the Commission that are planning to run games of chance, including but not limited to raffles or bingo.
Nonprofits that need to file an amended license application for a postponed raffle or bingo event do not need to list a new date for the event at this time. There are no filing fees for license application amendments. If a nonprofit has to cancel an event, it will receive a credit for the license fee it paid. The Commission will also waive late fees for nonprofits that file late registration renewals with the Commission.
For more information, visit the Commission’s website.
This document is provided as a general informational service to volunteers, clients, and friends of Pro Bono Partnership. It should not be construed as, and does not constitute, legal advice on any specific matter, nor does distribution of this document create an attorney-client relationship.