Congress Passes Bill to Assist Organizations with Unemployment Benefits Cash Flow

Bipartisan legislation, the Protecting Nonprofits from Catastrophic Cash Flow Strain Act, S.4209, has passed the Senate and the House and awaits the President’s signature.

Some 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.

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 covers 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.

S.4209 now clarifies that organizations are only required to provide 50 percent in payments up front. The net cost to the employer and the federal government 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.

While most religious nonprofit organizations are subject to state unemployment tax, states generally exempt churches from paying unemployment taxes. While churches could pay into their state unemployment tax program or reimburse the state for unemployment claims paid out to their former employees, few churches pay in or reimburse. So, while this new legislation will benefit the religious nonprofits covered by state unemployment tax, the legislation will have little impact on churches.

Stay tuned to ECFA’s “In the News” for the latest information on the status of this legislation and other potential legislation impacting 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.