IRS Help for Nonprofits During COVID-19: Filing Extensions, New Tax Credits, and Loan Programs

Learn about new tax credits, loan programs, and changes to charitable deduction laws created to ease the impact of the COVID-19 crisis on nonprofits.

As the U.S. economy suffers its steepest decline in modern history due to the coronavirus (COVID-19) pandemic, the nation’s nonprofits are reeling along with it. Congress has acted to help.

Filing Deadlines Extended for All 990 Forms

The IRS has extended the deadlines for filing the entire Form 990 series of information returns filed by nonprofits every year. For nonprofits with a calendar year tax year, these were supposed to be due May 15, 2020. The deadline is now automatically extended to July 15, 2020. This extension applies to:Form 990, 990-EZ, 990-PF, 990-BL, 990-N (e-postcard)). The filing deadline for IRS Form 990-T, Exempt Organization Business Income Tax Return due on April 15, 2020, has also been postponed to July 15, 2020. Form 990-T is an income tax form filed by nonprofits with unrelated business income.

The filing deadline has also been extended to July 15 for less used nonprofit forms, including Form 5227 (report for financial activities of split-interest trusts), Form 4720 (private foundation excise taxes).

You can get still get an automatic six-month extension of the time to file any of these of forms by filing IRS Form 8868, Application for Extension of Time to File an Exempt Organization Return. If the form was due May 15, this will extend the time to file the form until November 15, 2020. File a separate Form 8868 for each return for which you are requesting an automatic extension of time to file. Form 8868 must be filed by the due date of the form you are postponing. For example, to postpone filing a Form 990 due July 15, you must file Form 8868 by July 15.

The only 990 form you can’t get an extension of time to file is Form 990-N. This is the electronic postcard small nonprofits with annual gross receipts under $50,000 must file with the IRS each year to update their contact information. The 2020 Form 990-N is due July 15 for calendar year nonprofits. There is no penalty for filing Form 990-N late. But, if your nonprofit fails to file the form for three consecutive years, it automatically loses its tax-exempt status.

Charitable Deduction Tax Changes

As the economy suffers, so does nonprofit fundraising. The Coronavirus Aid Relief and Economic Security Act (CARES Act) enacted by Congress made two important changes in the tax law in attempt to help nonprofits get donations.

Universal Charitable Deduction

First, the CARES Act allows taxpayers to deduct up to $300 in charitable contributions without itemizing. The contributions must be made in cash to 501(c)(3) public charities. Contributions to nonoperating private foundations, support organizations, and donor advised funds don’t come within the new deduction. This change in the tax law is permanent—it applies to 2020 and all future years.

Nonprofits have long sought such a universal “above the line” charitable deduction that can be claimed by nonitemizers. As a result of recent tax changes, today only about 10% of all taxpayers itemize their personal deductions. Now, the other 90% can at least donate $300 each year and get a deduction. This $300 annual donation is much less than nonprofits sought, but it should encourage small donations.

2020 Increase in Charitable Donation Limit

For wealthier taxpayers who do itemize their personal deductions, the CARES Act increases the annual income limits on deducting charitable contributions. For 2020 only, taxpayers can deduct charitable contributions up to 100% of their adjusted gross income, increased from 60% of AGI. Corporate taxpayers may deduct up 25% of adjusted taxable income, increased from 10% (15% for food donations).

Sick Leave and Family Leave Tax Credits

The Family First Coronavirus Response Act signed into law on March 18, 2020 requires employers with less than 500 employees, including nonprofits, to provide their employees with paid sick leave and family leave. It also includes tax credits to help them pay for such leave. Nonprofits with fewer than 50 employees can apply for an exemption from the requirements.

Starting April 2, 2020 and continuing through December 31, 2020, covered employers must provide up to 10 days of paid sick leave to eligible employees who are impacted by the coronavirus pandemic. Covered employers are also required to provide eligible employees with up to 12 weeks of paid family and medical leave if an employee is unable to work or telework due to the need to care for the employee’s child under 18 years of age.

Nonprofits and other covered employers will receive a tax credit to provide 100% reimbursement for their costs. These tax credits not only cover the pay employers must provide their employees on leave, but the cost to maintain employee health insurance coverage during the leave period. Moreover, employers don’t have to wait until they file their 2020 taxes to get these credits. Instead, they can reduce the payroll taxes they must pay to the IRS right now to cover the cost. All payroll taxes may be reduced: income taxes withheld from employee pay, and both the employer and employee shares of Social Security and Medicare taxes.

If there are not sufficient payroll taxes to cover the cost of COVID-19 sick leave and/or emergency leave paid, employers will be able file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less.

Also, these sick leave and emergency leave payments don’t count as wages for Social Security and Medicare tax purposes. This means that employers who make such payments won’t have to increase their share of Social Security and Medicare payroll taxes.

For more information, see the FAQs prepared by the IRS.

Employee Retention Credit

All nonprofits, regardless of size, may be entitled to a new employee retention tax credit. This is designed to encourage employers not to lay off their employees during the pandemic. This a refundable credit--your nonprofit can collect the full amount even if it owes no taxes. The maximum amount for any employee is $5,000.

A nonprofit is eligible for this credit if it:

  • fully or partially suspends operation during any calendar quarter in 2020 due to a government order limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19, or
  • experiences a significant decline in gross receipts during the calendar quarter.

Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit. Note that your nonprofit cannot qualify for this credit if it receives a Small Business Interruption Loan under the Paycheck Protection Program .

For more information, see the FAQs prepared by the IRS.

Loan Programs

Low-interest loans are available to help nonprofits that need a quick infusion of cash. These include SBA economic injury disaster loans (EIDL) and loans under the paycheck protection program (PPP). Any nonprofit with less than 500 employees can qualify for either or both loan programs. However, you can’t use funds from each loan for the same expenses.

SBA Economic Injury Disaster Loans (EIDL)

Congress has added millions in additional funds to the Small Business Administration’s Economic Injury Disaster Loans program. These loans of up to $2 million have a 2.75% interest rate when made to nonprofits. Payments can be deferred for up to four years. Applicants can also get an emergency grant of up to $10,000 while applying for such a loan. Apply online with the Small Business Administration.

Paycheck Protection Program (PPP)

Congress has authorized a brand-new loan program called the Paycheck Protection Program. Nonprofits can borrow up to 2.5 times 2019 average payroll costs for all employees earning up to $100,000. You can borrow up to $10 million. These are two-year loans with a 1% interest rate. However, the loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities. Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease. For more information, see the SBA Paycheck Protection Program page.

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