An FYI (or reminder) to those who make charitable donations, in part, with tax deduction benefits in mind: the $300 above-the-line “universal” charitable donation tax deduction expired at the end of 2021, and is currently not active for the 2023 or 2024 tax years. Below, I’ll explain how the universal charitable donation tax deduction got started, why it has expired for 2023 and 2024 despite its popularity, and how it could potentially return.
What is the “Universal” Charitable Donation Tax Deduction?
The universal charitable donation tax deduction was created as a component of the CARES Act (the COVID relief bill in 2020), that Congress enacted as their signature COVID relief measure. This newly created deduction allowed every taxpayer to deduct up to $300 in cash donations in 2020 ($150 for “married filing separately” filers).
The 2nd COVID relief bill, the American Rescue Plan Act of 2021, re-authorized the new deduction for donations and increased the maximum universal donation deduction amount in 2021 to $600 for “married filing jointly”. It also set an increased cap of $300 for “married filing separately” filers.
This universal tax deduction was very popular because it was an “above-the-line” tax deduction, meaning that every taxpayer could claim it, regardless of whether they claimed the standard deduction or itemized tax deductions. Charitable donations declined after 2017 tax reform increased standard deduction amounts by almost 2X. Post tax reform, the IRS estimates that about 89% of all tax filers take the standard deduction, up from about 60% prior to tax reform. In 2018, the first year post tax-reform, 14.8 million returns claimed a charitable deduction, according to the IRS. This was down from 37.9 million the year prior, a 61% decline, which was predictably catastrophic for charitable donations.
Unfortunately, the universal donation tax deduction is not active in 2023 or 2024, having expired at the end of 2021, without renewal (at time of publish).
Will the Universal Charitable Tax Donation Be Renewed for 2023 or 2024?
Probably not. The universal donation deduction was incredibly popular. 42.2 million (29.4%) individual returns claimed the universal donation tax deduction in 2020, totaling $10.9 billion. There is no data on how many/much of those donations were made only because of the deduction, but it’s fair to assume that it was a significant portion.
Congress typically retroactively renews a number of tax provisions (aka “tax extenders”) at the end of each calendar year. In recent years this has included popular tax credits and deductions, including Energy Tax Credits, the Tuition & Fees Deduction, the mortgage insurance premium deduction, and others.
Given the popularity of the universal donation deduction, the fact that both political parties love providing tax breaks, and the charitable goodwill nature of this deduction, it’s somewhat surprising that this tax credit wasn’t renewed for 2022, 2023, and 2024. It’s possible, but it seems very unlikely at this point.
Should you make charitable donations regardless of the status of the charitable donation tax deduction, if you can afford it? Absolutely. Charitable organizations are critical for a functioning society and they need our donations every year, not just in years when there are tax benefits to be had.
A Note on Itemized Charitable Cash Donations
For those who do itemize their tax deductions and donate in large amounts, there is another significant charitable donation tax deduction expiration of note as well. Also as part of the CARES Act, those who itemized taxes could make a maximum charitable donation deduction up to 100% of adjusted gross income in 2020 and 2021 for cash contributions. In 2022, 2023, 2024, and beyond, that decreases back to 60% of AGI.
Whether you donate cash, cash equivalent, or goods or services, always remember to grab and hold on to a charitable donation receipt for your tax records.
For more on charitable donations, check out IRS publication 526, which will be updated prior to tax filing season.
I think I missed the boat on this one. I didn’t claim it at any point and now it’s already gone.