Universal Charitable Deduction back in the spotlight

A proposal to restore the federal Universal Charitable Deduction, which expired at the end of 2021, has been reintroduced in the U.S. Senate after failing to secure congressional passage last year. 

The bill, introduced by Sen. James Lankford (R-Oklahoma) and Sen. Chris Coons (D-Delaware), would allow taxpayers who don’t itemize to claim a below-the-line deduction for charitable giving of up to one-third of the standard deduction – which for tax year 2023 is $13,850 for individuals and $27,700 for married couples filing jointly – in addition to claiming the standard deduction itself. 

Eight other senators – six Democrats and two Republicans – have signed on as co-sponsors of the bill. They include Catherine Cortez Masto (D-Nevada), Marco Rubio (R-Florida), Maggie Hassan (D-New Hampshire), Raphael Warnock (D-Georgia), Amy Klobuchar (D-Minnesota), Gary Peters (D-Michigan), Tim Scott (R-South Carolina), and Jeanne Shaheen (D-New Hampshire). 

A House version of the bill, dubbed the Charitable Act, has not yet been introduced but is expected to follow soon. 

Nonprofits have been calling for a Universal Charitable Deduction ever since the Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction to $12,000 for individuals and $24,000 for couples as part of a reform package meant to reduce tax paperwork. The change reduced the incentive to itemize for all but 12% of taxpayers, thus taking away their tax incentive for charitable donations. 

Congress later instituted a temporary Universal Charitable Deduction of $300 for all tax filers as part of the CARES Act of 2020 and added a $600 deduction for married couples filing jointly in 2021, but both have since expired. 

Numerous nonprofit leaders have since pressed for restoration of the deduction, which they say would alleviate some of the funding difficulties the sector is facing at a time many nonprofits are seeing increased demand for services while also stepping in to fill the void left by the sunsetting of pandemic-era government programs.