A bipartisan group of Senators, including Senators James Lankford (R-OK) and Raphael Warnock (D-GA), are calling for a temporary change in tax breaks for charitable giving. S. 566, also called the Charitable Act, would allow taxpayers to claim a significant above-the-line deduction for charitable giving.
Above-The-Line Deduction
An “above-the-line” deduction, or adjustment to income, is available to taxpayers who do not itemize their deductions on Schedule A—that was more than 90% of filers in the 2020 tax year (the last year for which complete filing data is available).
Traditionally, however, taxpayers must itemize their deductions to take advantage of the charitable deduction. Less than 8% of taxpayers who itemized deductions on their 2020 tax returns claimed a charitable donation.
However, 41,390,425 taxpayers—more than 25% of all non-itemizers—took advantage of a CARES Act provision for the 2020 tax year allowing them to claim a special $300 deduction. We don’t yet have the complete data set from the expanded provision in 2021, but expect it to look similar, especially since Americans continued to be generous throughout the pandemic. In fact, in 2021, the largest source of charitable giving came from individuals, who gave $326.87 billion, representing 67% of total giving.
Bigger Deduction
The Charitable Act would aim not only to give non-itemizers a tax break, but it would also make the donation bigger—up to 1/3 of the standard deduction amount.
If it passed and was signed into law, it would apply to the tax years 2023 and 2024. For 2023, the standard deduction for single individuals is $13,850, and twice that amount, $27,700, for married couples filing jointly. That would mean that the new deduction would be worth a whopping $4,616.67 for a single individual and $9,233.33 for married couples filing jointly.
According to a press release, many nonprofits support the bill, including YMCA, United Way, Goodwill Industries, and the American Heart Association
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Angela F. Williams, President and CEO of United Way Worldwide, said about the bill, “Nonprofits like ours are on the frontlines of addressing community needs, and we rely on the generous donations of everyday Americans to carry out our mission. I am proud to support the bipartisan Charitable Act, which will make it easier and fairer for Americans to give back to their communities and the charitable causes they support.”
The bill has been read twice and referred to the Committee on Finance, where it now sits.