Menu
Tax Notes logo

Nonprofits Welcome Inclusion in Payroll Tax Credit

Posted on Mar. 18, 2020

Members of the nonprofit sector are pleased that a tax credit to help employers cover the costs of paid sick leave for employees affected by the coronavirus is available to tax-exempt organizations.

The refundable payroll tax credit is included in the Families First Coronavirus Response Act (P.L. 116-127).

In general, tax-exempt employers cannot avail themselves of employer tax credits because they don’t pay income taxes. But because the credit in the coronavirus proposal applies to payroll taxes, nonprofits may benefit as well.

That’s good news to representatives of the nonprofit community.

“At a time when our communities are facing never-before-seen challenges, we are heartened to see that our elected officials heard the message from nonprofits and ensured that the tax credit to cover paid leave will be crafted in a way nonprofits can use it,” said David L. Thompson of the National Council of Nonprofits.

“Too often in the past, Congress has touted help for employers in the form of income tax credits that could be applied only to taxes that nonprofits do not pay, thus leaving employers of 12.3 million Americans without access to much-needed relief,” Thompson said. “We’re glad that’s not the case this time. Now, nonprofit employers that want to ensure the health and well-being of their teams can do so with the knowledge that the government has our backs.

Sandra Swirski of Urban Swirski & Associates, who is executive director of the Alliance for Charitable Reform, also voiced approval.

“Keeping the lights on at nonprofits isn’t a luxury,” Swirski said. “They’re a key part of communities and employ, in some areas, up to 15 percent of the workforce. Any tax benefit offered to businesses ought to be structured so it’s available, and refundable, to nonprofits that pay no income tax but pay other taxes.”

Independent Sector agreed in a blog post that application of the credit to nonprofits is “significant.”

About 40 organizations representing nonprofits recently signed on to a letter asking lawmakers to include EOs in any coronavirus relief and economic stimulus package.

“Any employment-focused relief or stimulus legislation must expressly apply to employment at tax-exempt organizations by making tax credits and deductions applicable not just to income taxes, but to the taxes nonprofits pay, such as unrelated business income taxes and payroll taxes,” said the letter, updated March 13.

Copy RID