How the CARES Act Extension Affects Charitable Giving
The CARES Act extension affects donation(s), giving, and more: Here’s how.
Last March, as a response to the global pandemic, Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act. The act provided quick help to families and small businesses affected by COVID 19. It also gave relief to nonprofits and faith-based organizations by changing tax laws for charitable donations for a short time. We wrote all about the specifics of the law back in December to help you as you finish up your year-end fundraising campaigns.
On December 27, 2020, Congress passed another relief package that not only extended the CARES Act but also added some additional changes to help.
If you are anything like me, you avoid knowing anything about taxes so you can gladly pass the task of paying taxes off to someone else. However, knowing these added tax benefits could really change your generous giving this year. And if you’re in leadership positions for a charity or a spiritual organization, you need to know how the temporary stimulus package can help keep your doors open (even if just figuratively.)
What tax law changes from 2020 does the CARES Act extend into 2021?
There were two main charitable giving tax changes included in the 2020 CARES Act. These two are still in effect through the 2021 tax year.
1. CARES Act: $300 Above-the-line Deduction for Donation(s) to Charities or Churches.
What’s an “above-the-line” deduction”? So, first you need to know that your Adjusted Gross Income (AGI) is taxable income. Any deduction made that you don’t have to itemize and is used to determine your AGI is called an above-the-line deduction. Some examples of above-the-line deductions are:
- Student loan interest payments
- Tuition payments
- Health insurance premiums
- Retirement contributions
- HSA (Health Savings Account) contributions
- Charitable giving
Before the CARES Act donation provision, taxpayers who claimed the standard deduction did not receive a direct tax benefit from their donations. This new $300 deduction benefit is only for taxpayers who do not itemize their deductions.
2. You can donate up to 100% of your income and it can be tax free.
If you choose to itemize your deductions — You’d do this if your deductions are more than the standard deductions — the tax law used to state that you can deduct up to 60% of your income. Now under the CARES Act 2021 extension, you can deduct up to 100% of your income.
Again, if you’re anything like me you’ll be asking yourself, who has enough money to give away 100% of their income? Surprisingly, there are some. And these generous folks are entitled to not paying a dime to the government if they give all their income in 2021 to a charity. Additionally, any donation amount over 100% of your income can be rolled over to the following year (up to 5 years.)
What are the new tax provisions in the CARES Act for 2021?
The CARES Act donation provision modifies the $300 deduction for non-itemizers for 2021. The CARES Act Extension also raises the highest amount that may be deducted up to $600 for married couples filing jointly. This is great news for nonprofits that depend on individual donations coming from families versus foundations.
However, the Sec. 6662 penalty is increased from 20% to 50% of the underpayment for taxpayers who overstate this deduction. So just be sure you have actually given the amount for which you take the deduction!
What does this mean for charities and faith-based organizations?
First, note that your deadlines may have changed. Nonprofits and Charities deadlines for filing their 2020 tax returns are:
| Nonprofit Tax Filing Deadlines in 2021 (for 2020 Donations) | Due Date |
|---|---|
| Original tax deadline for exempt organizations (Form 990) | May 15*, 2021 |
| Extension tax deadline for exempt organizations (Form 990) | November 15, 2021 |
Next, even if you can’t open your doors to the public just yet, you can keep them open if you tell your donors and tithers about all the changes. As the individual filing deadline has been extended also (May 17th, 2021), you have time to encourage them to continue to give!
Remember that 2020’s maximum standard deduction was $300. The highest amount for couples filing jointly for 2021 is $600.00! This means that any CARES act fundraising campaign you ran in the fall of last year for $300 can be doubled! Why not copy those campaigns — special projects, COVID relief, or matching donations — for 2021? Can you ask your donors to pledge $600 instead of $300 over the next year?
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