Legislative Developments on Charitable Giving and Deductions

During the COVID-19 pandemic, Congress implemented a temporary measure allowing individual charitable donors who did not itemize their federal income tax deductions to deduct up to $300 in contributions in 2020 and 2021. This universal charitable deduction played a critical role in motivating donors who might not have otherwise contributed during those challenging years. However, the deduction expired at the end of 2021. Currently, a bipartisan group of U.S. senators, supported by numerous stakeholders in the nonprofit sector, is working to reintroduce this tax incentive.

Impact of Tax Changes on Charitable Giving

The Tax Cuts and Jobs Act, which nearly doubled the standard deduction, led many taxpayers who previously itemized deductions to opt for the standard deduction instead. According to researchers at Indiana University and the University of Notre Dame, this shift resulted in a $20 billion decline in charitable donations in 2018, the year the new standard deduction was implemented. Many nonprofits experienced financial strain due to this reduction in giving.

Although the reliability of giving data was somewhat compromised by the pandemic starting in 2020, the temporary universal charitable deduction appears to have encouraged donations, particularly among middle- and lower-income households. Data from the National Conference of State Legislatures indicates that over 47 million U.S. households utilized this tax incentive in 2021, with more than 21% of these donors reporting adjusted gross incomes under $30,000.

Legislative Developments and Sector Advocacy

In early 2023, a bipartisan coalition of U.S. senators introduced the Charitable Act, with a similar bill introduced in the U.S. House of Representatives. This proposed legislation aims to expand and extend the non-itemized deduction for charitable giving by increasing the allowable deduction to approximately $4,500 annually for individual taxpayers, and double that amount for joint filers.

Unsurprisingly, many nonprofits and advocacy organizations, including the National Council of Nonprofits and the Charitable Giving Coalition, have expressed strong support for this legislation. According to the latest Giving USA report, released by The Giving Institute, charitable donations fell by an inflation-adjusted 2.1% in 2023. Researchers suggest this decline is part of a broader trend of reduced charitable giving.

Looking Ahead: The Future of the Charitable Act

Despite being referred to the Senate Finance Committee, the Charitable Act has yet to advance, and its future remains uncertain. Organizations such as the Association of Fundraising Professionals are actively encouraging their members to reach out to legislators to advocate for the bill's revival. The nonprofit sector is expected to continue its efforts to lobby for legislation that supports and encourages charitable giving.