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Unemployment Relief for Self-Insured Nonprofits as part of CARES Act

Update June 8th, 2020: Unemployment Insurance: 120-Day Deadline Extension for Nonprofits

AAFCPAs would like to make clients aware of a provision in Section 2103 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which provides emergency unemployment relief for governmental entities and nonprofit organizations.

Emergency Unemployment Relief (Section 2103): The Act provides for additional funds to be transferred to states from the federal unemployment account to be used solely to reimburse Section 501(c)(3) organizations, government agencies and Indian tribes for one half of amounts paid for unemployment benefits between March 13, 2020, and December 31, 2020.

Nonprofits will be reimbursed for 50% of the costs incurred through the end of 2020 to pay unemployment benefits. This provision applies to organizations that have opted not to pay unemployment taxes, but instead reimburse states for benefits paid to former employees (self-insured nonprofits).

Details and regulations will be forthcoming from the Department of Labor and the Internal Revenue Service.

MA Update: On May 26th Governor Baker signed into law S.2618, which provides additional unemployment insurance flexibilities to those affected by COVID-19. The law includes  a 120-day delay in claim payments owed by nonprofits to the Commonwealth’s Unemployment Insurance trust. The law also exempts employers’ experience rating (which determines the amount of quarterly taxes that contributory organizations pay) from being impacted by the surge in COVID-19 related claims.

AAFCPAs has outlined below key details related to the CARES Act’s expansion of unemployment benefits:

  • The CARES Act uses expanded unemployment as a way to provide relief for unemployed Americans and state unemployment funds.
  • Division A Title II of CARES, called Assistance for American Workers, Families, and Businesses, expands payments of unemployment insurance in sections 2102 through 2109.
  • Section 2102 expands unemployment to include those not otherwise eligible, such as individuals who are self-employed, employed part-time, or have been employed for a short period of time. Assistance is available if the individual is out of work due to COVID-19 and its effects, whether the worker is ill or quarantined, or must care for family members who are ill or unable to receive care elsewhere. Such individual must not have the option to telework with pay, or currently be receiving paid leave.
  • Section 2103, Emergency Unemployment Relief for Governmental Entities and Nonprofit Organizations, provides funds to reimburse governmental entities and certain nonprofits for amounts paid for unemployment between March 13 and December 31, 2020.
  • Sections 2104, 2105, and 2107 through 2109 all provide for additional benefits paid for by the federal government.
  • Anyone eligible for unemployment benefits receives an additional $600 per week through July 2020.
  • The federal government will pay for the first week of benefits, if a state waives its standard one-week waiting period, so that anyone in the state who is unemployed is receiving payments immediately after becoming unemployed.
  • If state unemployment benefits are exhausted, the federal government will provide up to 13 weeks of additional unemployment benefits, up to 39 weeks in most states, at a weekly rate of $600.
  • Per Section 2110, states with a current Short-Time Compensation (STC) program will receive 100% of the cost from the federal government through December 31, 2020. For states that now choose to implement a STC program, the federal government will reimburse the state 50% of the cost through Dec. 31, 2020. This program pays employees pro-rated unemployment benefits for working less hours in an effort to keep employers from dropping employees from their payroll, so when COVID-19 has subsided, employers can easily ramp up operations.
  • Section 2111 ends with statements that the Department of Labor shall develop model guidance and language, which may be used by the states in developing and enacting STC programs. The DOL will also develop reporting requirements for states and provide technical assistance.

It is important to note that while the CARES Act was enacted on March 27th, states have needed additional time to re-vamp their procedures and their online portals to practically enact these provisions.

If you have any questions please contact Brittany Besler, MBA, CPA, Esq. at 774.512.9001, bbesler@nullaafcpa.com; or your AAFCPAs Partner.

CARES Act Task Force

AAFCPAs has formed a Task Force dedicated to studying and advising clients on the business implications of the Coronavirus Aid, Relief and Economic Stimulus (CARES) Act legislation, signed by President Trump on Friday, March 27th, 2020. Our CARES Task Force includes senior leadership and advisors from diverse segments of our organization, bringing the necessary talent together to best advise on the changing dynamics caused by the Coronavirus. Learn more. >>

About the Author

Brittany Besler
Brittany possesses a unique combination of tax, legal, and business backgrounds, and is a valuable member of AAFCPAs’ Tax practice. She provides tax planning, research, and compliance solutions for corporations, partnerships, nonprofits, individuals, estates & trusts. Brittany advises businesses and individuals on various federal, state, local and foreign tax-related issues, including counseling clients on the consequences of new and updated tax laws. She assists clients in the creation of appropriate and optimal organizational structures, and advises on tax planning and tax exemption compliance. She advises newly-formed and well-established nonprofit clients on meeting compliance requirements of various government agencies, including the IRS rules on fundraising and political activities.