Close
Close

Unemployment fix for not-for-profits enacted

RFP
Tax Hot Topics newsletter Lawmakers have agreed to a cash flow aid bill that will provide relief for non-profit organizations impacted by the COVID-19 crisis. The Protecting Nonprofits from Catastrophic Cash Flow Strain Act (S. 4209) was signed into law on Aug. 3 and makes a procedural fix to the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Not-for-profit organizations, similar to state and local governments and federally recognized tribes, can either cover unemployment related costs by paying into the state via state unemployment taxes (SUTA) or choose to be “reimbursing employers.” These “reimbursing employers” are self-insuring by not paying into SUTA but instead being billed by the state, periodically, after unemployment claims have been paid out to the not-for-profit’s former employees.

The CARES Act intended to provide relief to these not-for-profits by requiring the federal government to pay 50% of their self-funded unemployment liability for the period beginning March 13 and ending Dec. 31, 2020. The Department of Labor (DOL) however, interpreted this provision to require not-for-profits to pay their unemployment liability bill, as assessed by the state, “in full,” and to obtain a refund of 50% once the state received the funding from the federal government.

This interpretation to pay 100% of the unemployment bill had put a significant strain on NFP finances and cash flows, as they faced unprecedentedly high unemployment due to the COVID-19 pandemic.

Under the new legislation, states would only bill not-for-profits for 50% of the total unemployment costs. This procedural fix will result in the net cost to the not-for-profit and federal government to be the same but will provide relief to the not-for-profit by not requiring them to pay 100% of the cost upfront, thereby mitigating a cash crunch.

Furthering the relief for states that have already begun administering under current law requirements, the legislation includes an explicit safe harbor that would be applicable prior to the date of enactment. For payments that occurred after March 12, 2020, states may issue reimbursements or reduce the amounts required to be paid.

Cash flow forecasting is critical for not-for-profits during COVID-19. The legislation provides some relief, but not-for-profits should continue to monitor their cash expenses and optimize them where and as appropriate. Several cash options, including the Paycheck Protection Program and Main Street Lending programs are available to certain not-for-profits. Not-for-profits should seek guidance on how to avail these programs, as needed, to ensure their cash reserves are sufficient and not depleting.

Contacts:
Michelle Weber
Partner
Milwaukee Office
T +1 414 277 1536

Amyn Gillani
Director
Boston Office
T +1 617 973 4727

Jack McDermott
Senior Associate
Manhattan Office
T +1 212 634 5460

Tax professional standards statement 
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.