Most people lost the ability to deduct charitable contributions on their taxes this filing season, but a new bipartisan bill — called the Charitable Act — introduced this week wants to change that in a big way.
The bill would let people who take the standard deduction on their taxes — the wide majority of households — also deduct their donations to charities, religious groups and other nonprofit organizations.
During the 2020 tax year, pandemic-related laws let non-itemizers deduct $300 in cash donations. In tax year 2021, married couples could deduct up to $600.
The “above the line” charitable contribution deduction expired in 2022, but the Charitable Act’s proposed write-off amounts are far more generous for donors.
If the bill became law this year, the deduction could be worth more than $4,500 for an individual and over $9,000 for a married couple filing jointly, according to the bill’s sponsors. They include Sen. James Lankford, a Republican from Oklahoma, and Sen. Chris Coons, a Democrat from Delaware.
The deduction amount would be one-third of the standard deduction. That means the size of the proposed write-off would increase over time because it’s tied to the standard deduction.
The standard deduction and income tax brackets are indexed for inflation and adjusted annually.
This year, individual taxpayers have a $13,850 standard deduction. One-third of the sum is $4,570. This year, married couples filing jointly can take a $27,700 standard deduction. One-third is $9,141.
In tax year 2021, 90% of more than 154 million individual returns took the standard deduction, according to IRS statistics. During that year, almost 47 million returns used the above-the-line charitable deductions to write off $17.6 billion in contributions, according to IRS data.
Along with charitable contributions, itemizers can also deduct expenses like mortgage interest, medical expenses and up to $10,000 in state and local taxes.
People donate because they care about underlying causes and organizations, not for the potential tax benefit. But the bill’s sponsors say the legislation hopes to nudge more giving, and open up the tax code’s rewards.
“The Charitable Giving Act that we have is encouraging Americans to stay engaged and to do what we love to be able to do. That’s to be able to serve and to be able to give,” Lankford said at a Wednesday press conference.
“Currently our tax code is written in such a way that only the wealthy get any kind of benefit from giving financially to nonprofits. We want to spread that out to everybody.”
“I’m carefully optimistic that we’ll find a path to the president’s desk,” Coons said at Wednesday’s event.
If passed, the bill would take effect this year. There have been previous attempts to increase charitable deductions for people who don’t itemize, including a bill Lankford introduced in 2021 and Coons co-sponsored.
While charitable giving during 2022’s third quarter increased year over year, the total number of donors contracted again, according to data from the Association of Fundraising Professionals. The third quarter marked the fourth time in five quarters that the number of donors decreased, the organization said.
Anything to facilitate more giving is a win while inflation grinds at their operations, nonprofit leaders say.
“As expected, the universal charitable deduction enacted temporarily during the height of the pandemic unlocked more giving. Making the deduction permanent will provide an ongoing incentive to increase giving and also will counteract inflation,” Suzanne McCormick, YMCA of the USA’s president and CEO, said in a statement.
“Charitable giving has not kept up with inflation, let alone met increasing community needs,” said Tim Delaney, president and CEO of the National Council of Nonprofits.
“The Charitable Act proposes sound tax policy that would incentivize millions more taxpayers to give to their local community-based organizations, enabling people to feel more invested in, engaged with, and supportive of the collective success of their neighbors and community.”
