How the CARES Act Impacts Charitable Giving for 2020

Information about the COVID-19 Stimulus Package / CARES Act

CARES Act for Nonprofits – Friday, March 27, 2020, the Congress passed and the President signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion economic stimulus package legislated to provide immediate relief for nonprofits.
Learn more about the impact of COVID-19 at the NPH homes ->

High Level Information

New Deduction Available: Up to $300 per taxpayer ($600 for a married couple) in annual charitable contributions. This is available only to people who take the standard deduction (for taxpayers who do not itemize their deductions). It is an “above the line” adjustment to income that will reduce a donor’s adjusted gross income (AGI), and thereby reduce taxable income. A donation to a donor advised fund (DAF) does not qualify for this new deduction.

New Charitable Deduction Limits: As part of the bill, individuals and corporations that itemize can deduct much greater amounts of their contributions. Individuals can elect to deduct donations up to 100% of their 2020 AGI (up from 60% previously). Corporations may deduct up to 25% of taxable income, up from the previous limit of 10%. The new deduction is for gifts that go to a public charity, such as NPH USA. The old deduction rules apply to gifts to private foundations. The higher deduction does not apply to donations directly to a DAF.

Required Min. Distributions Waived in 2020 for Most Donors: Required minimum distributions (RMD) that would have had to start in 2020 do not have to start until 2021, including distributions from defined benefit pension plans and 457 plans. Even without the requirement to take a minimum distribution, making a gift of a qualified charitable distribution (QCD) this year will still allow itemizers and non-itemizers alike to direct up to $100,000 from their IRA to charities in a tax efficient manner.

Details About CARES Act

The inclusion of an expanded charitable giving incentive is a critical acknowledgement by Congress that the work of nonprofits like NPH USA are essential services. Indeed, COVID-19 cases and deaths remain high in Latin America where NPH works, and now more than ever children need the care and programs we provide. It is the first time Congress has passed this type of giving incentive in response to disaster or national emergency.

Here’s How it Works

New Deduction Available: The bill makes a new deduction available for up to $300 per taxpayer ($600 for a married couple) in annual charitable contributions. This is particularly beneficial to people who take the standard deduction when filing their taxes (in other words for taxpayers who do not itemize their deductions). It is calculated by subtracting the amount of the donation from your gross income. It is an “above the line” adjustment to income that will reduce your AGI, and thereby reduce taxable income.

To qualify, you would have to give a donation to a qualified charity. If you have already made your donation since Jan. 1, that contribution counts toward the $300 cap. A donation to a donor-advised fund (DAF) does not qualify for this new deduction.

New Charitable Deduction Limits: Also part of the bill, individuals and corporations that itemize can deduct much greater amounts of their contributions.

Individuals can elect to deduct cash contributions, up to 100% of their 2020 adjusted gross income, on itemized 2020 tax returns. This is up from the previous limit of 60%.

Corporations may deduct up to 25% of taxable income, up from the previous limit of 10%.

The new deduction is only for cash gifts that go to a public charity. If you give cash to, say, your private foundation, the old deduction rules apply. And while the organizations that manage DAF’s are public charities, you do not get the higher deduction for donating cash to your DAF. These new limits do not apply to gifts of appreciated stock.

If your assets are substantial enough that you can give more than your income this year, you won’t lose the deduction for the excess amount. You can use it next year, as has always been the case.

Required minimum distributions waived in 2020 for most donors: RMD for individuals over age 70 ½ are suspended until 2021. This includes distributions from defined benefit pension plans and 457 plans. Even without the requirement to take a minimum distribution, making a gift of a qualified charitable distribution (QCD) remains an attractive way for donors to make a significant charitable gift directly from their IRA to a charity while avoiding taxable income.

The takeaway – donors directing a QCD to charity this year (up to $100,000 per individual) will still reduce their taxable IRA balance. This allows all taxpayers, itemizers and non-itemizers alike, to direct gifts from their IRA to charities in a tax efficient manner.

For more information, please contact us at info@nphusa.org.

NPH USA is a registered 501(c)(3) nonprofit corporation, Federal Tax ID# 65-1229309, that transforms the lives of vulnerable children in Latin America and the Caribbean by supporting the homes, health services and educational programs of Nuestros Pequeños Hermanos (NPH, Spanish for “Our Little Brothers and Sisters”). Our donors have the Power to Empower our children to realize their hopes and dreams.

This information is not intended as legal or tax advice. For such advice, please consult an attorney or tax advisor. Figures cited in any examples are for illustrative purposes only. References to tax rates include federal taxes only and are subject to change. State law may further impact your individual results.

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