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04.17.20   |   COVID-19, Insights

Reimbursement of Unemployment Coverage Costs for Certain Nonprofits under the CARES Act

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The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act includes a provision to assist “reimbursing employers” by covering one-half of the cost of unemployment coverage.

Most nonprofit organizations are contributing employers and pay state unemployment taxes. Some nonprofit organizations, however, can elect to be a “reimbursing employer” under the Ohio unemployment system. As a reimbursing employer, the nonprofit does not pay unemployment tax like for-profit entities. Rather, if the nonprofit’s laid-off employee files for unemployment, the nonprofit will reimburse the state, dollar for dollar, for the amount of unemployment benefits claimed by the nonprofit’s laid-off employee.

Under the CARES Act, a nonprofit that elected to be a reimbursing employer may be reimbursed by the state for one-half of the cost of paid unemployment coverage for its employees. The nonprofit employer will continue to reimburse the state for the full cost of unemployment coverage for its laid-off employee benefit charges. Then, the federal government will reimburse the state up to one-half of those costs. The state, in turn, will reimburse the employer for one half of the total cost the employer paid for the unemployment coverage for its employees. Practically, the reimbursing employer will end up paying only 50% of the total cost of unemployment coverage for its laid-off employees, rather than its normal 100% obligation. The Act covers an employee’s unemployment coverage incurred from March 13, 2020, through December 31, 2020.

This provision only applies to those entities that have the option to elect, and have elected, to utilize the reimbursement method for unemployment costs (under Section 3309 of the Internal Revenue Code), which include State government entities, Indian tribes, and 501(c)(3) organizations that have at least four employees working at least 20 weeks during the year.

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