2020 Year-End Tax Guide

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UNEMPLOYMENT CLAIMS The CARES Act does provide some protection for nonprofits facing historical levels of unemployment benefit claims. The law covers half of the lump-sum unemployment costs for employers that are self-funded. However, nonprofits face further challenges claiming this benefit as it became clear the law was written to require them to cover the cost up front and then submit for reimbursement. This was later fixed with the Protecting Nonprofits from Catastrophic Cash Flow Strain Act. PAYROLL TAX DEFERRAL The CARES Act also brought with it several broad business relief provisions, including an employer payroll tax deferral, which includes employers in nonprofit sector. The deferral does not apply to employee income tax withholding, the employee or employer portion of the Medicare tax, or the employee portion of the Social Security tax. The deferral applies only to the employer’s share of Social Security taxes. There are no employer eligibility requirements with respect to the deferral. This deferral applies to deposits and payments of the employer’s share of Social Security tax that would otherwise be required to be made during the period beginning on March 27, 2020, and ending December 31, 2020 (the “payroll tax deferral period”). The deferred taxes will be due and payable to the IRS in 50% installments by December 31, 2021, and December 31, 2022. The PPP Flexibility Act enacted in June 2020 allows PPP loan recipients to defer the payment and deposit of these taxes, even if the loan is forgiven, which was not the case prior to enactment.