Universal Charitable Deduction
UPDATE: On February 28, Senators James Lankford (R-OK) and Chris Coons (D-DE) introduced their Universal Charitable Deduction legislation and renamed it from “The Universal Giving and Pandemic Response and Recovery Act,” to simply “The Charitable Act” (bill number S. 566).
Charitable Deductions: What is the issue?
Taxpayers are able to deduct from their taxable income the amount of charitable donations they made to nonprofit 501(c)3 organizations, and in this way, lower their overall tax liability (see the sidebar for definitions of a few key terms).
As a general rule of thumb, charitable contributions can only be a deducted if you itemize your personal deductions, instead of taking the standard deduction. If you do not itemize, you do not get the benefit. The idea of a Universal Charitable Deduction allows people to deduct charitable contributions up to a maximum amount, regardless of their level of income and regardless of whether they itemize or take the standard deduction.
Why do nonprofits care?
The ability for individuals to deduct charitable donations from their tax liability acts as an incentive to charitable giving and encourages the flow of financial resources to support the work of nonprofits.
When a larger standard deduction went into effect in 2018, fewer people itemized because people itemize only when itemizing would result in a deduction larger than the standard deduction. Thus, fewer people were eligible for the tax incentive of giving.
What is the Ideal Policy?
The Nonprofit Alliance (TNPA) calls on Congress to make the Universal Charitable Deduction a permanent provision in the Tax Code and to increase the $600 married/$300 single taxpayer cap on the Universal Charitable Deduction.
The enactment of the Tax Cuts and Jobs Act (TCJA) of 2017 effectively doubled the Standard Deduction to $12,000 for individual taxpayers and $24,000 for married couples filing jointly. Having been adjusted for changes in the Consumer Price Index (CPI), these levels have increased to $13,850 and $27,700 for 2023.
This change in the Standard Deduction reduced the number of taxpayers itemizing — and thus being able to claim a deduction for charitable contributions — from approximately 30% of all taxpayers to just 12% of taxpayers. In effect, this means only 12% of taxpayers are eligible to receive a benefit when making a charitable contribution, while, without the Universal Charitable Deduction, 88% receive no benefit at all.
In March of 2020, the $2.2 trillion CARES Act of 2020 was signed into law, including a universal charitable deduction of $300 per taxpayer — regardless of whether filing as an individual or married — for the tax year 2020.
Then in December of 2020, the $900 billion Consolidated Appropriations Act of 2021 was signed into law, which included an increase for 2021 in the Universal Charitable Deduction to $600 for married couples filing jointly, while maintaining the deduction at $300 for single taxpayers.
TNPA was a leading voice in the effort to enact this important deduction.
Toward the middle of last year, it appeared the package of 27 expired tax provisions, including the Universal Charitable Deduction, which expired on December 31, 2021, would be passed by Congress. Unfortunately, Congress could not come to closure on the package, leaving us without any Universal Charitable Deduction. A real frustration for nonprofits!
On February 28, Senators James Lankford (R-OK) and Chris Coons (D-DE) introduced their Universal Charitable Deduction legislation and renamed it from “The Universal Giving and Pandemic Response and Recovery Act,” to simply “The Charitable Act” (bill number S. 566). As was the case with the prior legislation, it again calls for a universal charitable deduction open to all taxpayers regardless of their level of income up to 1/3 of the current standard deduction, which is $13,850 for single tax filers and $27,700 for married couples filing jointly. Additionally, rather than being a one-year bill as was previously the case, The Charitable Act will run for two years – 2023 and 2024.
The level of the universal deduction in the legislation is more of an “aspirational” number, with the immediate focus again being on reinstating the deduction at $600 for married couples and $300 for single filers as was the case when the current legislation expired on December 31, 2021. Over the long term, TNPA’s ultimate goal is to eventually increase the size of the deduction from the $600/$300 level, and importantly, make it permanent.
Upon its introduction on February 28, The Charitable Act had a total of 11 cosponsors. This figure is expected to grow in the coming weeks and will likely exceed last year’s number of cosponsors, which was 19. TNPA will be working closely with Senators Lankford and Coons to add cosponsors.
Who are key players?
IN THE U.S. SENATE
- James Lankford (R-OK)
- Chris Coons (D-DE)
IN THE U.S. HOUSE OF REPRESENTATIVES
- Chris Pappas (D-NH)
- Brian Fitzpatrck (R-PA)
Deductions: A tax deduction is a deduction that lowers a person or organization’s tax liability by lowering their taxable income. Deductions are typically expenses that the taxpayer incurs during the year that can be applied against or subtracted from their gross income in order to figure out how much tax is owed. (investopedia)
Standard Deductions: The Internal Revenue Service (IRS) standard deduction is the portion of income not subject to tax that can be used to reduce your tax bill. You can take the standard deduction only if you do not itemize your deductions. The amount of the standard deduction is based on several factors including your filing status and age.
Charitable Deductions: Donations to 501(c)(3) nonprofits are tax-deductible. When you make a contribution (and receive nothing in return) to an organization that has been designated as a 501(c)(3) by the IRS, you are eligible for a deduction when you file your taxes.
3.8.2023 | TNPA Blog: The Journey to Enact Legislation with Mark Micali: Universal Charitable Deduction
3.8.2023 | NonProfit PRO: Senators Push to Restore the Universal Charitable Deduction: 3 Things You Need to Know
3.2.2023 | The NonProfit Times: Congress, NPOs Take Another Shot At A Universal Tax Deduction
Charitable Giving Coalition 2022 | Universal Charitable Deduction one-pager