On August 3, 2020, President Donald Trump signed into law the Protecting Nonprofits from Catastrophic Cash Flow Strain Act of 2020. The bill eases cash flow challenges by granting nonprofits a reprieve from unemployment tax cost.
Background on Reimbursing Employers
Federally recognized tribes, local governments, and nonprofits operate as reimbursing employers, paying their share of state unemployment insurance (SUI) taxes by reimbursing states for 100 percent of the unemployment benefits to be paid to each employee, rather than electing to pay SUI taxes on a quarterly basis.
Previously, Sect. 2103 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act was intended to provide emergency relief to nonprofits by federally financing 50 percent of the costs of unemployment benefits paid to laid off or furloughed employees. Additionally, nonprofits were required to pay the other 50 percent. However, guidance issued by the Department of Labor in April required states to collect 100 percent of unemployment contributions upfront and issue nonprofits a reimbursement of 50 percent later, putting additional financial strain on organizations significantly impacted by COVID-19.
The new legislation resolves this discrepancy by clarifying that nonprofits are only required to pay 50 percent of benefits to the state, in which the state will provide the CARES Act’s 50 percent emergency relief to the reimbursing employer — enabling nonprofits to avoid paying their full bill first. The net cost to the employer and federal government will remain the same, but will significantly mitigate the cash flow concerns for many nonprofit employers.
For more information about the bill, visit Congress.gov