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The CARES Act Increases Donation Tax Deductibility

Income Tax Return Deduction Refund Concept

The CARES Act that Congress passed in response to the COVID-19 crisis is best known for its Payroll Protection Program SBA loans and other measures of cash relief.  Getting less attention are the provisions that increase the tax-deductibility of donations to charities.  But these changes could mean a lot to cash-starved nonprofits if it incentivizes giving.

Why The Change Was Necessary

The tax reform bill that passed in 2017 essentially doubled the standard deduction for individual and joint tax filers.  One of the most substantial consequences of that change was that the percentage of taxpayers who itemize their deductions went from around 35% to 6%.  Though the vast majority of people saw their tax burden go down, it also meant that over 95% of taxpayers could no longer write off their gifts to charity.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act creates two, temporary changes to the tax treatment of such donations.  One is a universal deduction targeted primarily at the 90+% of standard deduction taxpayers, and the other is meant to incentivize the remaining high income givers and corporations.

Two New Tax Benefits to Donors

Universal Deduction for Donations Up to $300

For the over 9 out of 10 people who no longer itemize their charitable giving, the CARES Act will allow these individual taxpayers to deduct donations to charity of up to $300 on their 2020 federal tax return, even though they take the standard deduction.  Married-filing-jointly taxpayers will get an above-the-line deduction of up to $600.

Raising the Charitable Giving Deduction Cap

For those donors who are still able to itemize their deductions, and therefore directly write off gifts to charity, the current deduction cap is 60% of adjusted gross income*.  Corporations are able to deduct charitable donations up to 10% of taxable income.

*The 60% of AGI limit is for giving to 501(c)(3) public charities.  The deductibility of gifts to 501(c)(3) private foundations is capped at 30%, and was not included in this legislation.

The CARES Act lifts these caps to 100% for individuals and joint filers, while corporations will see their cap lifted to 25% for 2020.  These are truly substantial changes to the tax treatment of donations.  For individuals, it could theoretically mean zero taxable income if someone gives big.

For example, if John Taxpayer has an AGI of $175,000, he would normally be able deduct up to $105,000 for gifts to charity.  With the temporary changes in the CARES Act, John could now deduct up to his full AGI of $175,000 if he gives that much to charity in 2020.  The math works the same way for corporations.

An interesting side note is that the deductibility cap for donations to Donor Advised Funds wasn’t included, even though they technically qualify as public charities.

Our Take

There has been some criticism of these measures.  Some have complained that the limit for standard deduction filers is too low.  Others have charged that the primary beneficiaries will be wealthy donors.  Such are the outcomes when far-reaching legislation is debated and passed in just a few days.

While some of the criticism has a valid point, I think it is critical that nonprofits not miss this opportunity.  The changes involve real money, and have the potential to incentivize donors to open their wallets a bit wider.

My concern is that not enough people know about this.  The media just hasn’t focused on this aspect of the CARES Act.  For this reason, it is incumbent on nonprofits to inform their donors and followers who are probably not aware that this temporary measure is out their for them.

The window for taking advantage of these changes closes on December 31, 2020.

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Greg McRay, EA

Greg McRay, EA

Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

This Post Has 13 Comments
  1. Do all nonprofits benefit from this or does they need to address health and human services? Do donations of up to $300 to an environmental 401(c)3 nonprofit also qualify?

    1. I think you mean environmental 501(c)(3), not 401. If so, then yes. The $300 donation deductibility for non-itemizers isn’t limited by organizational purpose.

  2. Is it the first $300 and only the first? Could a person donate $300 multiple times, each time to a different charity?

    1. It does not, no. Donations to most private foundations and donor advised funds remain at 30% and 60% respectively.

  3. Did you mean to say ‘2020’ (not 2019) in this statement: ‘’With the temporary changes in the CARES Act, John could now deduct up to his full AGI of $175,000 if he gives that much to charity in 2019.“

  4. Nice!
    Is there a summary paragraph or two that non profits can include in their letters, newsletters?

    Thx,

    Loretta Spivey

    1. That’s something you’ll have to come up with that matches your story with your donors. For inspiration, however, you may want to do a search on “CARES Act charitable giving”. Just that search phrase alone turns up numerous charity websites that are sharing this message. Good luck with it!

  5. If the CARES act passed in March, 2020, how is it possible that “The window for taking advantage of these changes closed on December 31”
    Did you mean to say that it WILL close on Dec. 31? Would that be 2020 or 2021?

    1. Great catch…now fixed! Even after proofing, that one got missed. It should read “closes” December 31, 2020.

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