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Update: The bill was signed into law, and the new universal deduction is officially available to taxpayers for cash gifts made to charities in the calendar year 2020.
Senate Finance Committee Chairman Chuck Grassley (R-Iowa) today released a detailed summary of the $2 trillion stimulus bill in the Senate aimed at responding to the economic wreckage caused by the pandemic. One smaller, less noted provision represents something that charities have been seeking since the Trump tax cuts of 2017 hampered charitable giving: an above-the-line charitable income tax deduction.
Under the 2017 tax law, the standard deduction was increased so much that way fewer people are itemizing deductions, including for gifts to charity. The proposal in the stimulus would let non-itemizers take up to a $300 above-the-line charitable income tax deduction for cash donations made in 2020. So for folks who take the standard deduction, if you give $300 to charity, you’d get the $300 tax break in addition to the standard deduction ($12,400 for individuals and $24,800 for married couples filing jointly).
That wouldn’t mean a lot to an individual’s pocket book. If you’re in the 10% tax bracket, it would be worth $30. If you’re in the 37% tax bracket, it would save you $111. (Note: The fact that it’s an above-the-line deduction can also help because it reduces your adjusted gross income, which can then mean you qualify for other tax breaks.)
But it would mean a lot to charities hurting because of the drop in charitable donations post-2017, which is only exacerbated by the current crisis. Charities lobbied for an uncapped above-the-line deduction back in 2017, calling it by the catchier name, the “universal” deduction. Universal, because it would extend the charitable deduction to all taxpayers.
The summary of the bill said that the new $300 tax break would apply just for 2020; the text of the bill (as passed and signed into law) says that it applies to tax years beginning in 2020. That means that it’s limited to gifts to charities made in calendar year 2020, according to Conrad Teitell, a lawyer at Cummings & Lockwood in Stamford, Connecticut and author of the Taxwise Giving newsletter. That’s still a big victory for charities: It sets a precedent for possibly even expanding the tax break with a higher cap—or no cap. In fact, bills have already been introduced in Congress to do so.
The updated stimulus bill (as passed and signed into law) also includes a provision that would help the most generous individual donors and corporate givers by eliminating the percent of AGI limits for charitable deductions. For individuals, the 50-percent of adjusted gross income limitation would be suspended for 2020. For corporations, the 10% limitation would be increased to 25% of taxable income.
A section-by-section summary of the updated stimulus bill provisions on unemployment insurance and tax policy, including the charity provisions, can be found here. Here’s a copy of the final text as passed by the Senate, and signed into law by the President. See Section 2204 and Section 2205.
For how retirees can divert even more to charity through their IRAs because of a stimulus law RMD holiday, see Congress Suspends Required Minimum Distributions For 401(k)s And IRAs, Opening Window To Tax Savings.
