On March 27, 2020, President Donald Trump signed into law The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which expanded the ability of individuals and corporations to deduct, for federal income tax purposes, gifts to certain charitable organizations.
The Tax Cuts and Jobs Act of 2017 substantially increased the standard deduction, resulting in fewer individuals itemizing deductions (such as gifts to charity). In 2020 only, those individuals who claim a standard deduction (specifically, those who do not itemize deductions) on their federal income tax returns can deduct from gross income, when determining adjusted gross income, up to $300 of cash-only contributions, excluding carry forwards, to certain charitable organizations described in Internal Revenue Code (IRC) section 170(b)(1)(A), other than supporting organizations or donor-advised funds (generally public charities, but the list includes some other types of charitable organizations). The Joint Committee on Taxation has indicated that a single $300 deduction applies to each tax filing unit, so that a married couple filing jointly would be allowed a single $300 deduction.
With respect to cash contributions to charitable organizations described in IRC section 170(b)(1)(A), other than supporting organizations or donor-advised funds (generally public charities, but the list includes some other types of charitable organizations), in 2020 only, the individual may deduct up to 100% of the individual’s contribution base reduced by other charitable contributions.
The contribution base for this purpose, as defined in IRC § 170(b)(1)(H), is adjusted gross income (computed without regard to any net operating loss carryback to the taxable year under § 172). Contributions in excess of this amount may be carried forward for the next five years.
When determining federal taxable income, an individual who itemizes deductions may be able to deduct charitable contributions, subject to limitations that depend on the type of taxpayer, the property contributed, and the recipient organization. For taxable years beginning after December 31, 2017 and before January 1, 2026, the percentage limit for cash contributions by an individual to an organization described in IRC section 170(b)(1)(A) (generally public charities) is 60% of the donor’s contribution base.
Individual Retirement Accounts
An individual age 70 ½ and older may directly distribute up to $100,000 annually from an individual retirement account to charitable organizations described in IRC section 170(b)(1)(A), other than supporting organizations or donor advised funds (generally public charities, but the list includes some other types of charitable organizations). This is known as a Qualified Charitable Distribution (QCD). Although the individual does not receive a charitable deduction for federal income tax purposes for a QCD, neither is the amount distributed included in the individual’s gross income. The CARES Act suspends the requirement to take a Required Minimum Distribution (RMD) in 2020; however, QCDs are not premised upon the need to take an RMD, even though they are applied against the RMD amount when required.
- The CARES Act permits corporations to deduct up to 25% of taxable income, increased from 10%, for 2020. Any excess above the 25% can be carried over for the next five years.
- For certain charitable contributions of food inventory that are made during 2020, the CARES Act increases the statutory 15% limit on deductibility to 25%.
- Employee Leave Contributions: On June 11, 2020, the IRS issued Notice 2020-46 (the Notice). The Notice provides tax relief for employees who forego personal leave time in exchange for an employer contributing cash to one or more charitable organizations if the cash payments are:
- made to the organizations for the relief of victims of the COVID-19 pandemic in the affected geographic areas, and
- paid to the organizations before January 1, 2021. In that event, the employee will not be treated as having constructively received gross income or wages, or compensation, as applicable, for “donating” the leave time.
Neither will the cash payments made by the employer to the charitable organization be treated as wages (or compensation, as applicable).
Subject to limitations imposed by the IRC, payments made by the employer to the charitable organizations (described above) may be deductible, if the employer meets applicable requirements.
The employee may not claim a charitable contribution deduction under IRC section 170 with respect to the value of forgone leave time.
For more information, please contact your PNC advisor. If you are not a PNC client, please call 844-749-2854.