An economic relief package to keep the economy afloat during the coronavirus outbreak expands the reach of the tax break for charitable donations but doesn’t go as far as nonprofit organizations would like.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act (H.R. 748), signed into law March 27, permits itemizers and non-itemizers to deduct up to $300 of cash contributions to charity in 2020. The objective is to encourage greater charitable giving during the coronavirus pandemic.
Organizations representing charities have urged Congress to establish a universal charitable deduction available to non-itemizers during the crisis. But they say the $300 limit is insufficient to address the expected decline in charitable donations.
They instead backed an amendment by Senate Finance Committee member James Lankford, R-Okla., that would have permitted non-itemizers to deduct charitable gifts up to one-third of the standard deduction — $4,000 for individuals and $8,000 for married couples — for the 2020 tax year.
“There is much to celebrate in this deal, but still a lot of advocacy needed as Congress starts thinking about ‘phase four,’” said Tim Delaney of the National Council of Nonprofits.
“The inclusion of a universal, non-itemizer deduction that every American taxpayer can use is a step in the right direction, but Congress needs to both significantly increase the $300 tax incentive and extend it to 2019 tax returns to get donations flowing to nonprofits immediately,” Delaney said.
In a March 25 post, Independent Sector said the $300 cap is “dramatically insufficient to address the decline in charitable giving that is likely coming as this crisis persists.”
Limits Suspended
The CARES Act also includes a temporary suspension of charitable contribution limits, which nonprofits had sought.
For individuals, the bill suspends the 50 percent of adjusted gross income limitation for 2020. For corporations, the 10 percent limitation rises to 25 percent of taxable income.
Also, the limitation on deductions for food inventory donations increases from 15 percent to 25 percent.
Payroll Tax Credit
There is also a refundable employer payroll tax credit of up to $5,000 per employee for 50 percent of wages paid during the pandemic.
Employers may claim the credit if their operations have been fully or partially suspended because of a COVID-19-related shutdown order or if their gross receipts dropped by more than 50 percent compared with the same quarter the previous year.
The National Council of Nonprofits notes that a tax-exempt organization’s entire operations must be considered when determining the revenue drop.
Also, the CARES Act credit is reduced by any refund an employer receives under the Families First Coronavirus Response Act (P.L. 116-127). The Families First law provides a refundable payroll tax credit to help employers, including exempt organizations, cover the costs of paid sick leave for employees affected by the coronavirus.
Remaining Issues
Groups like the National Association of College and University Business Officers (NACUBO) and the National Conference of State Legislatures were dismayed that state and local government employers were excluded from the Families First credit even though they are required to satisfy new sick leave and family medical leave requirements. They have asked Congress to remedy the exclusion.
NACUBO and other higher education groups also want the IRS and Treasury to clarify that recently announced extensions for filing tax returns and paying federal income taxes apply to colleges and universities and other exempt organizations.
NACUBO is also seeking relief for international scholars and students who may not be able to leave the United States because of travel restrictions related to the coronavirus. “Otherwise, they may be penalized as tax residents because they inadvertently exceed their permitted amount of time in the U.S. under the substantial presence test,” NACUBO explained in a March 23 post.
Disaster Relief
Marcus S. Owens and Diara M. Holmes of Loeb & Loeb LLP have asked Treasury and the IRS to confirm that President Trump’s decision to declare COVID-19 a national emergency triggers tax relief for individuals receiving qualified disaster relief payments under section 139.
“Section 139 relief would allow both corporations and company-sponsored charities to provide tax-free payments to company employees to help their families weather this national crisis,” Owens and Holmes wrote in a March 25 letter to Treasury Secretary Steven Mnuchin.