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Tracy Teale, CPA, Audit Stockholder and San Francisco Office Head.
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Not-For-Profit Unemployment Insurance Support

The COVID-19 disaster allows not-for-profit employees to get unemployment benefits in some states


For the week ending March 21st, a record 3.3 million people filed claims for unemployment in the US as the COVID-19 pandemic shut down large parts of America’s economy and the full scale of the impact of the crisis began to appear. As a percentage of employment, not-for-profits employ an estimated 10.2 percent of the workforce, so, it can be estimated that over 300,000 not-for-profit employees have been impacted by this surge in unemployment claims.

Most employers are required by law to offer unemployment benefits to former employees. This is true whether the organization is for-profit or not-for-profit. One requirement for receiving unemployment benefits is that your employer must pay state unemployment insurance taxes.

501(c)(3) tax-exempt organization

A 501(c) (3) organization is not required to pay taxes, including the state's unemployment tax. If the organization is not paying unemployment insurance taxes, it must reimburse the state for approved benefits claim paid to employees. If the organization is not classified as a 501(c) (3), paying the state's unemployment insurance program is not optional.

However, houses of worship, religious organizations that are affiliated with houses of worship, and religious schools are exempt from unemployment laws. Not-for-profits with fewer than four employees who work during 20 weeks of the year are also exempt. Employees working for these organizations are not eligible to receive unemployment insurance under normal circumstances.

Under Pandemic Unemployment Assistance (PUA) employees who aren’t covered by federal or state unemployment laws can receive benefits if they have a loss on employment due to the pandemic. To qualify workers must meet these three qualifications: 1) ineligible for any other state or federal unemployment benefits; 2) unemployed, partially unemployed, or cannot work due to the COVID-19 public health emergency; and 3) cannot telework or receive paid leave.

Therefore, employees of small nonprofits and religious organizations who have lost their jobs due to the crisis are now able to receive unemployment benefits under PUA.

The Federal government is also providing additional unemployment insurance relief to the not-for-profit sector through the CARES Act (Coronavirus Aid, Relief and Economic Security Act). The Act is the latest round of federal relief packages to address the COVID-19 pandemic.

The CARE Act provides temporary funds to reimburse nonprofits, government agencies, and Indian tribes for half of the costs they incur through December 31, 2020, to pay unemployment benefits.

Many not-for-profits are on the reimbursable schedule. These entities, rather than paying unemployment insurance taxes, receive a bill from the Unemployment Insurance Program for the benefits paid for their laid-off employees. In 2018 (the most recent data available), there were 76,231 covered employees for nonprofits under the reimbursable schedule.

The CARES Act also:

  • Provides direct stimulus checks to individuals and households, regardless of employment status
  • Adds $600 per week to state-level unemployment insurance (UI) benefits through July 31
  • Eliminates the one-week UI waiting period through December 31, 2020 – the federal government will cover the cost for this additional week of benefits
  • Makes an additional 13 weeks of unemployment benefits available through December 31, 2020, to help those who remain unemployed after they exhaust their state unemployment benefits
  • Provides federal funding to support “short-time compensation” programs for states that already have such programs in place

At RINA Accountants & Advisors, we provide not-for-profit tax services, accounting services, and management consulting services throughout Northern California. Our overriding objective is to help organizations succeed and fulfill their mission.

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