Background
Since 1917, the federal charitable tax deduction has provided a tax deduction for donations made to nonprofit organizations by taxpayers who itemize their tax returns. The 2017 Tax Cuts and Jobs Act made several changes that hurt the effectiveness of the charitable deduction. By increasing the standard deduction, it greatly reduced the number of taxpayers who itemize and therefore have access to the charitable deduction. Under current law, more than 90% of taxpayers don’t itemize, meaning less than 10% of taxpayers have a tax incentive to increase their donations to important causes.
In March 2020, Congress enacted a $300 charitable deduction for cash gifts from nonitemizers for 2020 and in December 2020 extended its availability through 2021 and increased the cap to $600 for joint filers. Thereafter, the number of small gifts – especially those of $300 and $600 – saw a significant increase before collapsing once the deduction expired at the end of 2021.
Current Legislation - 118th Congress
On March 1, 2023, Senators James Lankford (R-OK) and Chris Coons (D-DE) introduced the Charitable Act (S. 566). The Charitable Act would expand and extend the expired nonitemized deduction for charitable giving that would ensure Americans who donate to charities, religious organizations, and other nonprofits of their choice are able to deduct that donation from their federal taxes at a higher level than the previous $300 deduction.
On May 17, 2023, Representatives Blake Moore (R-UT), Danny K. Davis (D-IL), Michelle Steel (R-CA), and Chris Pappas (D-NH) introduced the Charitable Act in the House. The bill (H.R.3435) is a companion to the Senate version.
The legislation currently has broad bipartisan support, with 23 cosponsors in the United States Senate and 58 cosponsors in the House of Representatives.
Talking Points
- Charitable giving works and is good tax policy. For 2020, more than 25% of all non-itemizers claimed the special $300 deduction or 42.5 million more taxpayers participated. That temporary small non-itemizer generated $10.9 billion in charitable giving that year.
- Charitable dollars are essential to maintaining a healthy civil society and are vital to both nonprofit charities and local governments that depend on these resources to achieve their critical missions. A simple calculation shows that those in need receive at least $2.50 in benefits for every $1 of tax benefit. This is an impressive return on investment.
- AFP’s Fundraising Effectiveness Project found that small charitable gifts increased after the enactment of the temporary universal charitable deduction. In March 2020, Congress enacted a $300 charitable deduction for cash gifts from nonitemizers for 2020, and in December 2020, extended its availability through 2021 and increased the cap to $600 for joint filers. Thereafter, the amount of small gifts – especially those of $300 and $600 – saw a significant increase after the temporary universal deduction was not renewed.
- And since the temporary deduction expired, giving dropped 10.5 percent after adjusting for inflation in 2022, only the fourth time that donations have fallen since 1956, according to Giving USA. The same report found charitable giving as a share of personal disposable income dropped to 1.7 percent – a near 30-year low.
- The Charitable Act will incentivize millions of more Americans to give and support their communities.
