Spreading Cheer Through Charitable Giving

The holiday season is here—and for some, presents aren’t the only gifts. Charitable nonprofits are wrapping up 2023 with an influx of donations as taxpayers look to spread cheer while also taking advantage of donor tax benefits before the year ends.

For more than a century, policymakers have created incentives for individuals and corporations to support nonprofits that serve families and communities. Donating to charitable organizations has two main benefits: supporting a group’s mission and receiving a tax deduction.

Federal Deductions for Charitable Donations

Individuals who make charitable contributions typically are those who itemize their tax returns. Higher-income earners are more likely to itemize and have greater ability to give. The Congressional Research Service reports an estimated 82% of federal charitable giving tax expenditures are claimed by those in income brackets above $200,000.

The federal Tax Cuts and Jobs Act of 2017, however, significantly increased the standard deduction and capped the deduction for state and local taxes. As a result, the number of taxpayers who itemized deductions decreased from 32% in 2017 to 10% in 2022. The change also affected charitable deductions. The number of filers claiming the itemized charitable deduction fell after the 2017 law went into effect, according to an American Enterprise Institute analysis.

To promote charitable giving during the pandemic, Congress expanded eligibility for tax benefits. The 2020 Coronavirus Aid, Relief and Economic Security (CARES) Act and the Consolidated Appropriations Act of 2021 temporarily allowed non-itemizers a $300 tax deduction and increased the donation limits for individuals and corporations for tax years 2020 and 2021. Taxpayers taking the standard deduction on their 2021 returns claimed an additional $18 billion in total donations to nonprofits thanks to the universal charitable deduction. More than 47 million households used this tax incentive. Notably, more than one-fifth, or 21.3%, of donors claiming the deduction had adjusted gross incomes of less than $30,000.

The temporary incentives boosted giving to charitable organizations, signaling a willingness among taxpayers to donate at higher deductible levels. Giving USA reported total charitable giving by individuals, bequests, foundations and businesses in 2021 totaled $485 billion, up 4% from the previous year.

The universal charitable deduction expired after 2021. A bipartisan group from both houses of Congress introduced the Charitable Act (S 566/HR 3435) in 2023 to reinstate the non-itemizer, universal charitable deduction permanently and increase the benefit. Taxpayers who take the standard deduction (about 88% of taxpayers) would be able to deduct up to one-third of the standard deduction, or about $4,600 for individuals and $9,200 for married couples. The measure is pending.

State Deductions for Charitable Donations

States also offer incentives to encourage charitable giving. Most states and the district offer income tax deductions to stimulate private giving, though they might be limited to specific donations, such as motor vehicles or computer equipment.

State Individual Income Tax Deductions on Charitable Donations

Source: Bloomberg Tax

Charitable Giving Legislation

The nonprofit sector encompasses a wide range of entities that vary greatly in size and mission. Bills related to charitable giving incentives go beyond tax matters to include charitable raffles, donation regulations and reporting. Below are a few enactments from the 2023 legislative session:

• California SB 650: Charitable Raffles: Permits nonprofit organizations to conduct raffles to support charitable activity. At least 90% of gross receipts from the raffles must go directly to beneficial or charitable purposes.
• Colorado HB23-1091: Continuation of Child Contribution Tax Credit: Extends the Child Contribution Income Tax Credit by three years. The credit is intended to encourage taxpayers to make donations to promote child care in the state. The credit is equal to 50% of the total value of the contribution. The bill also expands credit eligibility to in-kind contributions.
• Kentucky HB287: Charitable Gaming Gross Receipts Deposits: Clarifies that a licensed charitable organization conducting charitable gaming events or sessions is required to deposit its gross receipts and adjusted gross receipts only one time per week into the “charitable gaming account” if charitable gaming just involves games using charity game tickets or is not part of a charity fundraising event. Receipts must total less than $2,500 in the week prior to deposit.
• Illinois HB 1197: Solicitation for Charity: Requires charitable organizations to report contributions more than $500,000 within a 12-month period to the attorney general. Contributions more than $300,000 but less than $500,000 must be accompanied by a written report meeting other specified criteria forms.
• Maryland HB 72: Regulations of Charitable Contributions: Alters the definition of “charitable contribution” to exclude an authorization for, or a discount on, the use of services or materials, equipment, or facilities, including advertising and broadcast airtime for a charitable purpose. The bill also authorizes the secretary of state to accept documentation in place of an audit or review of a charitable organization’s registration statement.
• Mississippi HB 261: Endowed Fund for Community Foundations: Extends Endow Mississippi, a 25% tax program to encourage individuals, businesses and organizations to give to permanent endowments at qualified community foundations. The bill increases the maximum amount of a qualified contribution to $500,000 and the total qualified contributions per year to $1 million.
• Nebraska LB 753: Contributions to Scholarship Granting Organizations: Provides a tax credit for individuals and corporations contributing to a scholarship granting organization for private tuition. The credit is either equal to the total contribution, 50% of the taxpayer’s income tax liability, or $100,000.
• New Hampshire SB 120: Charitable Gaming Licenses: Amends the definitions related to games of chance and eliminates certain requirements for charity applicants. Nonprofits seeking to use a game of chance for fundraising activities may apply for licenses for up to three years.

The holiday season reminds us of the role nonprofits play in improving the quality of life for individuals, communities and governments. Federal and state lawmakers recognize the value of incentives to support charitable giving. Without the tax benefit and the end-of-year donations it brings, maintaining nonprofit services would be challenging.

National Nonprofit Legislative Caucus

Legislative efforts to support nonprofits are building momentum. Maryland Sen. Cheryl Kagan (D), in partnership with NCSL and the National Council of Nonprofits, established the National Nonprofit Legislative Caucus. The bipartisan, bicameral group of legislators is dedicated to supporting charitable nonprofits and their communities. Legislators are invited to join the caucus to share ideas and legislation and to collaborate with nonprofit leaders to identify solutions to challenges nonprofits face in their states.

Emily Maher is a project manager in NCSL’s Fiscal Affairs Program. Tiffany Gourley Carter is a policy counsel with the National Council of Nonprofits.