Legislation Introduced to Assist Churches and Nonprofits with Unemployment Benefits Cash Flow

On June 19, 2020, bipartisan legislation, the Protecting Nonprofits from Catastrophic Cash Flow Strain Act, was introduced by U.S. Sens. Sherrod Brown (D-OH), Tim Scott (R-SC), Ron Wyden (D-OR) and Chuck Grassley (R-IA) to help churches and nonprofits.

Many churches and nonprofits are “reimbursing employers” (also known as reimbursable employers), meaning they pay their share of unemployment taxes by reimbursing states for 100 percent of the unemployment benefits collected by their former employees. Most states periodically bill reimbursing employers for benefits paid out during that period to their former employees. In turn, employers who opt for this payment method are not obligated to pay unemployment insurance payroll taxes.

Recognizing that some reimbursing employers would be unable to cover all of their unemployment costs, the CARES Act allows nonprofits to reimburse only 50 percent to the states while the federal government covered the other 50. However, guidance issued by the Department of Labor in April, requires states to collect 100 percent of unemployment costs from nonprofits up front and reimburse them later. The Senators’ bill would clarify that nonprofits are only required to provide 50 percent in payments up front. The net cost to the employer and the federal government would remain the same (50 percent of the cost is borne by the employer and 50 percent by the federal government), but the impact on the cash flow would free up much needed money for nonprofits.

Under current law and guidance, former and furloughed employees of a church or nonprofit organization file unemployment insurance claims collectively amounting to $25,000 in a given calendar quarter. The state workforce agency bills the church or nonprofit for $25,000 at the end of the quarter, at which point the church or nonprofit must pay the full bill or risk financial penalties. If the employer can pay the full bill, then the state can ultimately reimburse it for $12,500, provided by the federal government for this express purpose.

Under this legislation, before the church or nonprofit pays any portion of its bill, the state workforce agency uses a federal transfer to the state unemployment trust fund to effectively reduce the bill to $12,500, which the church or nonprofit can pay without needing to pay the full $25,000 first.

For many churches and nonprofit employers, the requirement to pay 100% of the UI (Unemployment Insurance) bill before securing relief exacerbates the financial impact of historically high claims triggered by the pandemic, increasing the risk of further layoffs, closures, or substantial reductions in services. This legislation would enable states to provide the CARES Act’s 50% emergency relief to reimbursing employers without requiring these churches and nonprofits to pay their full bill first.

Stay tuned to ECFA’s In the News for the latest information on the status of this bill and other potential legislation churches and nonprofit organizations.

This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.