From 1982 to 1986, federal tax law allowed all taxpayers to deduct their charitable contributions regardless of whether they took the standard deduction or itemized deductions separately. Nonitemizers contributed $9.5 billion to charity in 1985, when they were permitted to deduct 50% of their contributions. In 1986, when they were allowed to deduct 100% of their contributions, giving increased by nearly 40% to $13.4 billion. That legislation was allowed to sunset at the end of 1986 and has not been reenacted since.
Independent Sector's Position
Since its creation, Independent Sector has supported extending the charitable deduction to the 66% of taxpayers who do not itemize deductions on their taxes. It is important for all Americans, including those of modest means, to be recognized for their contributions to support local religious organizations, youth and family programs, medical research theaters and museums, and a host of other causes. Yet, under current law, only taxpayers who itemize their deductions are recognized for their charitable contributions at tax time. Reenacting this tax deduction for all taxpayers would send a powerful message that we as Americans highly value and strongly support charitable giving and provide much-needed tax relief to low- and middle-income taxpayers who give back to their community.
Status
On November 18, 2005, the Senate passed the Tax Relief Act
of 2005 (S. 2020/H.R. 4297) which contained charitable giving incentives
including a provision that would have allowed taxpayers who claim
the standard deduction (non-itemizers) to take a deduction for their
total cash contributions over $210 for single filers and
over $420 for joint filers. In May 2006, Congress passed the final
version of the tax reconciliation bill (H.R. 4297) without the nonitemizer
provision. (Some of the other provisions in the package of charitable
giving incentives and reforms were, however, later included
in a pension reform bill that was enacted on August 17, 2006.)
Under the provision passed by the Senate in H.R. 4297, taxpayers
who itemize deductions would have been permitted to deduct the total
of both cash and non-cash contributions over $210 ($420
for joint filers). Both provisions were intended to be in place
for two years. The proposal was expected to be largely revenue neutral,
resulting in an estimated revenue loss of approximately $2 million
over ten years (since the proposals are only in effect for two years),
because the added cost of the deduction for non-itemizers would
be offset by the revenues raised by limiting deductions by itemizers.
The CARE Act of 2005 (S 1780) and the Charitable Giving Act (HR 3908) introduced in September, 2005, contain the same nonitemizer provision, but with different effective dates. Individuals who take the standard deduction could take a deduction of up to $250 for contributions once their giving exceeds a $250 floor, while married donors filing jointly can deduct up to $500 for contributions in excess of a $500 floor. This Senate provision would be effective for tax years 2005 and 2006. The House provision would be in effect only for tax year 2006. The same provision was passed by the House and Senate in the 108th Congress.
Previous Action
The House of Representatives passed H.R. 7, the Charitable Giving Act, by an overwhelming vote of 408 to 13 on September 17, 2003. It contained a nonitemizer provision identical to the provision in the CARE Act (S. 476), which the Senate passed on April 9, 2003, by a vote of 95 to 5. The nonitemizer deduction would have allowed taxpayers who take the standard deduction to deduct charitable giving over $250 up to a ceiling of $500 (joint filers can deduct giving over $500 up to $1,000). A conference to resolve differences between the House and Senate bills was not convened before the 108th Congress adjourned in December 2004.
Despite efforts into the final days of the 107th Congress, an agreement to bring the CARE Act of 2002 to the Senate floor was not reached. The Senate Finance Committee passed a version of the CARE Act on June 18, 2002 based on the bill (S. 1924) by the same name introduced by Senators Lieberman and Santorum, however, it contained a different version of the charitable deduction for nonitemizers. The bill passed by the Senate Finance Committee contained a two-year nonitemizer deduction with a floor of $250 and a ceiling of $500 for individuals (floor of $500 and ceiling of $1,000 for joint filers). It would have been available for tax years 2002 and 2003.
The CARE Act (S. 1924) as introduced by Senators Lieberman and Santorum on February 8, 2002 would have included a $400 charitable deduction for nonitemizers for 2002 and 2003. Joint filers who are nonitemizers could deduct up to $800 for charitable contributions. The two-year provision would allow sufficient time to assess the impact of this deduction on federal tax revenues and on charitable giving before Congress would decide whether or not to extend the deduction for a longer period. (bill text and cosponsors)
The House of Representatives passed (July 19, 2001) a small charitable deduction for nonitemizers as part of the Community Solutions Act of 2001 (H.R. 7). Taxpayers who claim the standard deduction could claim $25 for 2002 and 2003; $50 for 2004-2006; $75 for 2007-2009; $100 for 2010 and thereafter. For joint filers, the allowable amount is doubled. The total cost of the House provision over ten years is $6.37 billion. (analysis, bill text and cosponsors)
Frequently Asked Questions
Who benefits from the nonitemizer charitable deduction?
The 86 million Americans (about 2/3 of all taxpayers) who take the standard deduction would benefit from the nonitemizer charitable deduction by receiving an immediate tax break if they make charitable contributions. Those who take the standard deduction, nonitemizers, are primarily low- to middle-income Americans (90% earn less than $50,000 per year) who do not own homes or whose mortgage interest payments or state and local taxes are not substantial enough to qualify them to itemize deductions separately. They are students, teachers, maintenance workers, bus drivers, police officers, and other hard-working taxpayers who deserve to be recognized and rewarded when they make contributions that benefit the community.
Isn't this deduction just a way to provide a tax break to those
who give now? How much impact would the nonitemizer deduction really
have on charitable giving?
Not only would the nonitemizer deduction acknowledge current giving but nonprofits could use the nonitemizer as a creative tool to reach a new donor constituency. For example, colleges and universities could use this incentive to encourage giving by recent alumni who do not yet itemize deductions. And while no one can estimate precisely how much new giving will be generated by this tax deduction, there is broad agreement that there will be an increase in donations. An analysis of data from the IRS Statistics on Income Bulletin (Spring 2000) shows that regardless of their income level, taxpayers who receive a deduction for their charitable contributions give considerably more to charity than those who do not receive a deduction.
What types of charitable organizations would benefit from the increased giving?
Any nonprofit organization that relies on contributions from taxpayers at all income levels could benefit from the charitable contributions incentive.
Doesn't the standard deduction already include an amount for
charitable giving?
The standard deduction provides a standard amount for all taxpayers, regardless of income level, that can be used in lieu of itemizing expenses for medical care, state and local income and property taxes, mortgage interest payments, charitable contributions, and other expenditures. Congress has never stipulated a specific amount within the standard deduction to cover any one of these items.
Isn't the nonitemizer deduction just a prescription for fraud?
There is no reason to charge that nonitemizers would be more likely to submit fraudulent claims to the IRS than are itemizers. The IRS has rules in place that stipulate the documentation a taxpayer is required to have in order to claim a charitable contribution deduction and language that clarifies which contributions are deductible.
Which nonitemizer deduction proposal would be the best structure for this provision?
The proposal made by President Bush in 2001 would have provided the strongest incentive for both increased giving and new giving because it would have given nonitemizers—66% of all taxpayers—the same deduction for charitable contributions that is now extended only to taxpayers who itemize deductions separately. The proposal passed by the Senate Finance Committee in 2002 and 2003 (floor of $250 an ceiling of $500 for individuals) is far from ideal, but much stronger than the version passed by the House in 2001(starting with $25 for individuals/ $50 for joint filers and gradually increasing to $100 for individuals/ $200 for joint filers). The House version would have provided little or no incentive for new or increased giving according to a Congressional Research Service report.
Background Documents
Why Nonprofits Should Support the Nonitemizer Charitable Deduction: an open letter to the nonprofit community...2/25/02
Statement by Sara E. Meléndez, former president and CEO of Independent Sector, on Charitable Giving Package Compromise Legislation and Giving In America fact sheet...2/7/02
Find out about
President Bush's nonitemizer proposal in 2001
Find out what happened to this proposal in the 106th Congress, 105th Congress
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