Congressional Confrontations | What Do They Mean for Nonprofits?
Last week, Congress passed a law to keep the federal government funded, but so far divisions have blocked it from averting another catastrophic shutdown in about two weeks and from enacting either of President Biden’s infrastructure social agenda legislation. Pundits and partisans are vigorously debating what this means for the economy, the American people, and the 2022 elections. Let’s focus here on the impact on the work of charitable nonprofits in communities throughout the country.
- General: Partisan discord doesn’t just cause stress and delay action on necessary legislation; it creates distrust in all American institutions, including charitable organizations. Nonprofits are paying the price of uncertainty in multiple ways, including increased costs, reluctance of workers to return to work or fully engage, and diversion of limited resources to plan for alternatives. Charitable organizations often step in when times are hard, but the pandemic has strained the ability of nonprofits to rise to address politician-made crises.
- Continuing Resolution: On Thursday, Congress passed and President Biden signed R. 5305, the continuing resolution (or “CR”) that funds the federal government through December 3. This means the federal government will remain open, individuals will receive benefits and services, and payments to nonprofits from federal agencies will continue. The CR also includes nearly $29 billion in disaster aid and $6.3 billion for Afghan resettlement.
- Debt Ceiling: Congress only has until about October 18 to raise or suspend the debt ceiling before the federal government will default on its past financial obligations, creating “catastrophic economic consequences.” That would not only increase interest rates and inflation and cause a crisis in the U.S. and worldwide credit markets, but also generate trauma for the public and impose unmanageable workloads on nonprofits when the federal government stops paying its bills. Objections to taking appropriate actions are purely political, even though all participants say they don’t want a government default or shutdown. Nonprofits typically are expected to rush in with aid when government offices close, and therefore have a great deal riding on the outcome of the partisan brinksmanship. Read Federal Debt Limit: Why Is It Important?
- Infrastructure: Due to disagreements between moderates and progressives in the Democratic Party, the House has not voted yet on the Senate-passed bipartisan infrastructure legislation. The bill to spend $1 trillion on roads, bridges, broadband, and other infrastructure projects includes a $50 million grant program to promote nonprofit building energy efficiency. However, it would also end the Employee Retention Tax Credit (ERTC) three months earlier than the scheduled year-end expiration date under the American Rescue Plan Act. See related ERTC article, below, in Advocacy in Action.
- Budget Reconciliation: Recognizing that the budget reconciliation bill will have to shrink if it is going to pass at all, Democratic congressional leaders and the White House must decide whether to retain a wide array of initiatives, but at lower spending levels, or to focus funding on a few high-profile priorities, such as extending the Child Tax Credit, creating a paid leave program, and tackling climate change. The decision to cut the price tag could leave out Democratic priorities such as providing free childcare and Pre-K, addressing homelessness, and stabilizing and expanding Affordable Care Act benefits. Charitable organizations work in each of these fields, and many others, so the outcome of the reconciliation debate could make a big difference in the ability of nonprofits to advance their missions.
Vaccination and Testing Requirement Updates
Government agencies are working to provide answers to many questions arising from the announcement by President Biden of his comprehensive plan to combat COVID-19, which includes requiring vaccinations and testing for large segments of the U.S. workforce. On September 24, the Safer Federal Workforce Task Force issued its guidance on the vaccination rules for government contractors. Covered contractors must ensure that all of their covered full-time and part-time employees are fully vaccinated for COVID-19 by December 8, 2021, unless individual employees are legally entitled to an accommodation, including workers with a disability or a sincerely held religious belief. The vaccination requirement applies to all employees of covered contractors, including employees in covered contractors' workplaces who are not working on a federal government contract. Further, all employees and visitors to workplaces must comply with masking and social distancing protocols. The guidance reiterates that the contractor mandate does not apply to entities operating under federal grants (grantees).
Also last month, President Biden directed the U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA) to issue an emergency rule requiring employers with more than 100 employees – including large nonprofits – to (1) require their employees to be vaccinated for COVID-19 or to be tested at least once a week and (2) provide paid time off for workers to get vaccinated or recover from vaccinations. On Wednesday, the National Council of Nonprofits sent a letter to OSHA seeking clear answers on several nonprofit-specific questions about the forthcoming vaccination/testing requirement rule, such as how employees will be counted, whether the rule will apply to employees working offsite, and whether volunteers will be covered by the rule. Similar letters seeking clarifications have been submitted by the National Retail Federation and the U.S. Chamber of Commerce. It is unclear when OSHA will issue its Emergency Temporary Standard.
- Supreme Court Returns: Today, the U.S. Supreme Court returns to hear oral arguments after its traditional time away during July through September. Although the Court did not conduct regular hearings during those months, it continued its recent trend of making decisions in what scholars, practitioners, and even a justice are calling a “shadow docket” where binding decisions are made without full briefing or oral arguments. Court observers predict that this next term will be “extraordinarily controversial,” given that the justices have agreed to hear cases on several divisive issues, including abortion, guns, religion, and water rights, with thousands more petitions for review still pending and yet to be filed.
- Promoting Charitable Giving Incentives: The IRS issued a helpful reminder about current charitable giving incentives. The announcement, entitled “Expanded tax benefits help individuals and businesses give to charity in 2021” (COVID Tax Tip 2021-143), highlights the above-the-line deduction (universal or nonitemizer deduction), the relaxed rules on cash donations, the hike to 100% in the amount itemizers can claim each year (up from 20% and 60% for businesses and individuals, respectively), the increase from 10% to 25% in the amount corporations can deduct, and increased limits on amounts deductible for donations of certain food inventories. Congress enacted and extended these temporary improvements during the pandemic in response to intense advocacy from the nonprofit sector.
- Providing Input on Tax-Exempt Organization Forms: The Internal Revenue Service has issued a notice and request for comments on tax-exempt organization forms, notably Forms 990, 990-EZ, 990-N, and 990-PF, as well as regulations, notices, and Treasury Decisions affecting tax-exempt organizations. Specifically, the IRS is seeking input on taxpayer compliance burdens that the Service defines as “the time and money taxpayers spend to comply with their tax filing responsibilities.” These include “recordkeeping, tax planning, gathering tax materials, learning about the law and what you need to do, and completing and submitting the return,” plus out-of-pocket costs. Public comments are due November 30, 2021.
Spending ARPA Funds
States’ Performance Mixed in Shoring up UI Trust Funds
It is clear from Treasury Department guidance that states are permitted to use allocations of Coronavirus State and Local Fiscal Recovery Funds under the American Rescue Plan Act to replenish their unemployment trusts funds, pay off debts, and provide relief to employers. Yet few states have taken such actions, and employers – nonprofit and for-profit alike – may soon pay the price. So far, states have dedicated only $8 billion of the nearly $95 billion (8%) in ARPA funds available to them for this purpose, according to a new study by the Tax Foundation. The report observes, “With almost $45 billion in outstanding … and aggregate net balances of -$11.1 billion, using a substantial share of remaining Fiscal Recovery Fund balances to restore unemployment compensation trust funds to pre-pandemic levels is one of the most responsible things states can do with the money.”
Among the states that have acted, Louisiana, Utah, and Virginia replenished their respective unemployment compensation funds with ARPA funding over the summer. Recently, Michigan enacted its 2022 budget that includes dedicating $150 million of its ARPA funds to shore up the state’s trust fund and thereby avert tax hikes on contributing employers. To learn more about how “lifting unemployment burdens off employers” and holding contributing and reimbursing employers harmless is a good investment in communities, see Special Report on Strengthening State and Local Economies in Partnership with Nonprofits.
Nonprofit Advocacy Rights Threatened
The Hawai`i Attorney General's Office may use its investigatory powers to access bank records of nonprofits engaging in advocacy actions, the Hawai`i Supreme Court recently ruled. The Attorney General had demanded information about monies going into and out of a nonprofit organization’s bank account to determine whether the organization had violated its tax-exempt status and conducted actions for an “illegal purpose.” The Attorney General claimed it was justified in seeking those records because the nonprofit supported protests on Mauna Kea and the blocking of public roads to stop the construction of a telescope. While the court found that the Attorney General has authority to investigate whether a nonprofit’s actions are charitable and lawful, it limited the subpoena’s reach into the nonprofit’s financial records to only money leaving the nonprofit’s bank accounts, rejecting inquiries into the sources of the nonprofit’s revenues. Many nonprofits and advocacy rights experts have expressed concern about the overreach and potential chilling effect of the decision.
#NationalVoterRegistrationDay a Big Success
Nonprofit Vote announced that last week’s 2021 National Voter Registration Day was a big success because of the event’s many returning and new partners. The outreach campaign on September 28 trended at #1 online throughout the day, with 3,000 community partners hitting the ground for voter registration drives and more than 80 premier partners engaged in nonpartisan Get Out the Vote efforts. Numbers are still coming out, but thanks to all who participated this year. And now it’s time to get #VoteReady!
The #GivingTuesday team is hosting a virtual summit on October 6 to explore ways to rally your community on the biggest giving day of the year. Platforms including Facebook, Instagram, Google, Mailchimp, Canva, TikTok, Twitter, YouTube, Zoom, and others will share tips and best practices. You’ll also get a sneak peek into trends in generosity, creative ways to give during a pandemic, and more. Register for free here.
Preserving the Employee Retention Tax Credit for Nonprofits
Don’t Leave ERTC Money for Your Mission on the Table
Nonprofits not taking advantage of the ERTC are likely “leaving money on the table.” Let’s change that.
The ERTC is a refundable payroll tax credit based on wages paid to employees at organizations that either (1) have been fully or partially shut down due to a government order OR (2) had gross receipts decline a certain percentage less than those in the same calendar quarter of 2019.
Yes, you or accounting/payroll professionals have to make some calculations, but the time spent can be well worth it. The maximum credit for 2020 is up to $5,000 per employee, and for 2021 it is up to $7,000 per employee per calendar quarter. Learn more about claiming the credit for 2020 expenses and for 2021 expenses.
The Employee Retention Tax Credit (ERTC) has proven to be an essential tool for nonprofits to keep staff on the payroll since it was first enacted in the CARES Act in March 2020 and improved later in two separate laws. Its status, however, is in doubt because Congress is under the misimpression that employers – predominantly for-profit businesses – haven’t found it helpful or believe it too complicated to use. (See box at right for why nonprofits should apply for the ERTC.) If nonprofits don’t speak up now – loudly – the important support will disappear because Congress is set to repeal the ERTC for the Fourth Quarter of 2021 as part of the bipartisan infrastructure legislation.
Nonprofits across the country are mobilizing to preserve and extend the ERTC for charitable organizations. Last month, three dozen national nonprofits sent a Letter to Congressional Leaders asking them to preserve the ERTC for nonprofits this year and into 2021, pointing out that past “relief for charitable organizations has fallen short” compared to the funds distributed to for-profit businesses. Specifically, nonprofits are calling on Congress to prioritize continued support for nonprofits by (1) allowing charitable organizations to access the ERTC during the Fourth Quarter of 2021; (2) extending nonprofit eligibility for the ERTC through 2022 to help ensure a strong economic recovery from the pandemic; and (3) amending the definition of nonprofit “gross receipts” for the ERTC program to better reflect revenue available to support nonprofits amid the pandemic.”
State associations of nonprofits have also taken the case to their lawmakers. The Nonprofit Association of Oregon recently sent a letter signed by 130 nonprofits across the state to Senate Finance Committee Chair Wyden (D-OR) seeking his “support for urgent relief through retention and improvement of the ERTC in budget reconciliation that will enable charitable organizations to contribute to our nation’s relief, recovery, and rebuilding.”
Massachusetts Nonprofit Network and Providers’ Council sent a letter to House Ways and Means Committee Chair Neal (D-MA) arguing for support for extension and expansion of the ERTC by citing examples of Massachusetts nonprofits that have taken advantage of the incentive. The letter warns, “Taking away the ERTC before the end of the year will absolutely lead to layoffs and a reduction of vital services our fellow residents need.” Further, the letter from the CEOs of the nonprofit associations explains, “Extending the ERTC into 2022 and adjusting the definition of ‘gross receipts’ to more realistically reflect how nonprofits operate would ensure that charitable organizations continue to meet the challenges that Massachusettsans will face well after the pandemic is finally beaten.”
Similar letters from the Alliance of Arizona Nonprofits and the West Virginia Nonprofit Association to Senators Sinema (D-AZ) and Manchin (D-WV) urged them to “fight on behalf of charitable nonprofits by working to ensure that these employers remain eligible to utilize the Employee Retention Tax Credit through the fourth quarter of this year and into 2022.” Likewise, the Center for Non-Profits in New Jersey and the Pennsylvania Association of Nonprofit Organizations called on Representatives Gottheimer (D-NJ) and Fitzpatrick (R-PA), the leaders of the bipartisan Problem Solvers Caucus, calling on them “to advance the interests of our communities’ charitable non-profits and those they serve by negotiating the extension and expansion of the Employee Retention Tax Credit in reconciliation and other legislation on which you are working.”
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