Federal Charitable Giving Incentive

Strong charitable giving incentives to encourage all Americans to help their communities through charitable donations during challenging times. The federal charitable giving incentive was significantly reduced under the 2017 federal tax law [1] because of the near doubling of the standard deduction, which results in a decline in the number of people who itemize. Two years later, data is showing the detrimental effects [2] of the law. It is imperative that Congress reverse the harmful effects by passing an above-the-line, universal, also known as a non-itemizer, charitable deduction to create a giving incentive for all taxpayers.

Why it Matters

Raising the standard deduction or capping all itemized deductions, including charitable giving effectively takes away incentives for donations to churches and synagogues, domestic violence shelters, early childhood programs, food banks, school alumni groups, and all other charitable nonprofits, and reduce the ability of charitable organizations to meet the increasing need for services in their communities.

Nonprofit organizations throughout the United States are dedicated to the public good; their work improves lives, strengthens communities and the economy, and lightens the burdens of government, taxpayers, and society as a whole. Maintaining the value of the charitable deduction is essential to the ongoing work of nonprofit organizations in delivering essential services, enhancing quality of life, and uplifting the spirit of faith, innovation, and inspiration in local communities across America.

Where We Stand

Charitable nonprofit organizations throughout the United States are dedicated to the public good; their work improves lives, strengthens communities and the economy, and lightens the burdens of government, taxpayers, and society as a whole. Consistent tax policies at the federal, state, and local levels are critical to the success of charitable nonprofits in pioneering and implementing solutions to community problems and aspirations. The National Council of Nonprofits is committed to preserving the tax-exempt status of organizations contributing to the well-being of their communities and strengthening and expanding incentives for individuals to give their time and money to the organizations whose missions they support. In practice, this commitment means … supporting existing, enhanced, and new tax and other incentives (including a non-itemizer deduction) at the federal, state, and local levels that encourage individuals to volunteer their time and contribute money to the missions of all charitable nonprofits and opposing floors, caps, or limits on existing charitable giving incentives.

Public Policy Agenda [3]

What Nonprofits Can Do

Help protect the charitable giving incentive that supports the work of nonprofits in our communities now and in the future by sharing your story here [4] and contacting your Senators and Representatives to tell them how the giving incentive translates into impact in your community. Let Congress know it can still preserve charitable giving incentives by enacting a non-itemizer or universal deduction to avoid the negative consequences resulting from the new federal tax law.

Status

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (S. 748 [5]), passed in response to the COVID-19 crisis, includes a new non-itemizer deduction that applies to all taxpayers for total charitable contributions of up to $300. The incentive applies to contributions made in 2020 and would be claimed on tax forms next year (Section 2204). The bill also lifts the existing cap on annual contributions for those who itemize, raising it from 60 percent of adjusted gross income to 100 percent. For corporations, the bill raises the annual limit from 10 percent to 25 percent. Food donations from corporations would be available to 25 percent, up from the current 15 percent cap (Section 2205). Expanding the above-the-line deduction in the CARES Act is a major policy priority of the nonprofit community, as explained in the Nonprofit Community Letter [6] signed by more than 450 national organizations.

Background

The 2017 federal tax law increased the standard deduction for individuals (to $12,000), couples (to $24,000), and heads of households (to $18,000), resulting in a decline in the number of those who itemize from 30% of taxpayers to approximately 13% of taxpayers, according to the Joint Committee on Taxation [7]. Charitable and philanthropic organizations did not oppose doubling the standard deductions, but instead offered a solution to avoid the devastating consequences. To hold the work of charitable nonprofits harmless under the proposed changes, they proposed including a universal charitable deduction [8] to create a giving incentive for all taxpayers. The increase in the standard deduction expires after 2025.

Adjusted for inflation, giving was lower in 2020 than in 2017, according to Giving USA [2]. Charitable giving fell below combined Gross Domestic Product growth for 2018 and 2019, which are the only two years on record in that individual donations were less than 70 percent of total charitable giving, a dangerous trend following the 2017 tax reform law.

The Fundraising Effectiveness Project [9] released data about giving in the first quarter of 2020 that found donations are down 6 percent and the number of donors is down 5.3 percent. Perhaps most disturbing, donations from major donors ($1,000 and up) dropped 7.4 percent. See analysis by the Charitable Giving Coalition [10].

Proposals to Alter the Charitable Deduction

Universal Giving Pandemic Response Act (S. 4032 [11] / H.R. 7324 [12]): would make available — for tax years 2019 and 2020 — an above-the-line deduction for charitable giving on federal income taxes valued at up to one-third of the standard deduction (around $4,000 for an individual filer and $8,000 for married joint filers). The Senate bill was introduced by Senators Lankford (R-OK) and Coons (D-DE). The House sponsors are Representatives Pappas (D-NH) and Walker (R-NC). See the Senators’ news release [13] and the Representatives’ news release [14]. Expanding the above-the-line deduction in the CARES Act is a major policy priority of the nonprofit community, as explained in the Nonprofit Community Letter [6] signed by more than 450 national organizations.
Charitable Giving Tax Deduction Act (H.R. 651 [15]): The bipartisan bill, introduced by Representatives Chris Smith (R-NJ) and Henry Cuellar (D-TX), would enable all taxpayers to deduct charitable donations from their taxes, regardless of whether they itemize. The amount a taxpayer could deduct would not be capped. The introducers stated [16] they worked together "to ensure that taxpayers who want to make tax-deductible donations to charities have the greatest flexibility possible to do so."
Universal Deduction for Charitable Giving (H.R. 1260 [17]): The bill would extend an uncapped charitable deduction to all taxpayers, regardless of whether they itemize. Rep. Danny Davis (D-IL) introduced the bill to "encourage and increase charitable giving."
CHARITY Act (S.1475 [18]): The Charities Helping Americans Regularly Throughout the Year Act of 2017 [19], introduced by Senators John Thune (R-SD), Bob Casey (D-PA), Ron Wyden (D-OR), and Pat Roberts (R-KS), amends the Internal Revenue Code to encourage charitable giving and ensure the value and scope of a charitable contributions not be diminished through tax reform. The legislation would ewould make four changes: (1) raise the current volunteer mileage rate, currently fixed at 14 cents/mile, to the rate for medical and moving expenses, which is regularly adjusted by Treasury and currently is set at 20 cents/mile; (2) require electronic filing of most Form 990s; (3) expand the IRA charitable rollover to allow for distributions to donor advised funds (DAFs); and (4) simplify the private foundation excise tax from the current two-tiered structure to a flat rate of one percent.