Policy Issue: Universal Charitable Deduction

Background

Since 1917, the federal charitable tax deduction has provided a tax deduction for donations made to nonprofit organizations by taxpayers who itemize their tax returns. The 2017 Tax Cuts and Jobs Act made several changes that hurt the effectiveness of the charitable deduction. By increasing the standard deduction, it greatly reduced the number of taxpayers who itemize and therefore have access to the charitable deduction. Under current law, more than 90% of taxpayers don’t itemize, meaning less than 10% of taxpayers have a tax incentive to increase their donations to important causes.

In March 2020, Congress enacted a $300 charitable deduction for cash gifts from nonitemizers for 2020 and in December 2020 extended its availability through 2021 and increased the cap to $600 for joint filers. Thereafter, the number of small gifts – especially those of $300 and $600 – saw a significant increase before collapsing once the deduction expired at the end of 2021.

Current Legislation - 119th Congress

On January 29, Senators James Lankford (R-OK) and Chris Coons (D-DE) introduced the Charitable Act (S.317). The Charitable Act would expand and extend the expired nonitemized deduction for charitable giving that would ensure Americans who donate to charities and nonprofits of their choice are able to deduct that donation from their federal taxes at a higher level than the previous $300 deduction. Specifically, this legislation would raise the previous $300/$600 cap on the non-itemizer deduction to one-third of the standard deduction, equal to roughly $5,000 for individuals or $10,000 for joint filers.

On January 30, Congressman Blake Moore (R-UT), Congressman Danny K. Davis (D-IL), Congresswoman Carol Miller (R-WV), Congressman Chris Pappas (D-NH), and Congressman Jimmy Panetta (D-CA) reintroduced the Charitable Act (H.R.801) in the House. The bill is a companion to the Senate version.

The legislation currently has broad bipartisan support, with 22 cosponsors in the United States Senate and 44 cosponsors in the House of Representatives.

Talking Points

• Charitable giving works and is good tax policy. For 2020, more than 25% of all non-itemizers claimed the special $300 deduction or 42.5 million more taxpayers participated. That temporary small non-itemizer generated $10.9 billion in charitable giving that year.
  Charitable dollars are essential to maintaining a healthy civil society and are vital to both nonprofit charities and local governments that depend on these resources to achieve their critical missions. A simple calculation shows that those in need receive at least $2.50 in benefits for every $1 of tax benefit. This is an impressive return on investment.
  AFP’s Fundraising Effectiveness Project found that small charitable gifts increased after the enactment of the temporary universal charitable deduction. Then, small-gift donors collapsed in 2022 after the temporary universal charitable deduction expired. From 2022 to 2023, the decrease in donors contributing less than $500 represented 79.3% of the overall decrease in donors. The latest report from Q3 2024 shows a continued decrease in donors that gave less than $100, which fell 12.4% in the last year.
  Since the temporary deduction expired, inflation-adjusted total giving declined for two consecutive years, according to Giving USA. Despite strong economic indicators in 2023, inflation-adjusted total giving decreased by 2.1%, and giving by individuals declined by 2.4%, the largest drop among Giving USA’s four categories of sources of giving.
  The Charitable Act will incentivize millions more Americans to give and support their communities. A 2025 report found the Charitable Act could generate an estimated $40 billion in additional donations annually—a 7% increase over 2023 levels. The cost to the federal government is projected at $16 billion per year in 2026 and 2027, demonstrating a high return on investment in philanthropic activity.

Support the Universal Charitable Deduction by contacting our Congressional members and joining IPA's Foundation on the Hill.