The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on March 27, 2020, providing unprecedented government relief in response to the COVID-19 pandemic. The law contains provisions that are relevant to charitable giving, both directly and indirectly.
Temporary Changes to Charitable Giving Laws
A key aspect of the CARES Act that directly impacts philanthropy is a temporary lifting of the adjusted gross income (AGI) limitation for cash gifts made by individuals to certain charitable organizations. Normally, an individual is limited in the amount of charitable gifts that she may deduct from her federal income taxes in a tax year. For example, taxpayers are typically not able to deduct more than 60 percent of their AGI for cash gifts made to public charities (for those taxpayers who itemize their deductions).
Under the CARES Act, the 60 percent AGI limit will not apply for charitable contributions made in cash during 2020, meaning taxpayers who itemize may deduct up to 100 percent of their AGI for qualifying charitable gifts made this year. This enhanced giving incentive applies to cash contributions only and does not apply to contributions to a donor advised fund or a supporting organization.
Further, there is a temporary above-the-line charitable deduction available for donors who do not itemize deductions on their federal taxes. The CARES Act provides for a maximum deduction of $300 for charitable contributions for taxpayers that elect not to itemize their deductions on their tax returns. As with those who itemize, the deduction does not apply to contributions made to a donor advised fund or a supporting organization.
Changes to IRA Distribution Requirements
The CARES Act also makes temporary changes to the distribution requirements for individual retirement accounts (IRA). Typically, an IRA owner is required to take required minimum distributions (RMD) from a retirement account when that owner reaches a certain age (either 70 ½ or 72 years of age). The CARES Act waives the requirement for IRA owners to take RMDs in 2020. This temporary easing will potentially help retirement accounts recover from steep stock market losses in the first quarter.
Unfortunately, the temporary easing of the RMD requirements has the potential to reduce charitable giving in 2020. In normal years, IRA owners who must take RMDs, but would rather not, can choose to direct up to $100,000 of their RMD to charitable organizations. These direct payments are known as qualified charitable distributions (QCD). QCD payments may be made to qualifying charitable organizations other than private foundations, donor advised fund sponsors and supporting organizations.
Many IRA owners choose to make QCDs because it enables them to make charitable gifts to organizations they care about directly from their retirement accounts while potentially keeping the IRA owners in a lower tax bracket. The easing of the RMD requirements in 2020 means that many IRA owners will not have the same incentive to make charitable gifts out of their IRAs, potentially lowering the amount of giving overall.
What Donors Can Do Considering These Changes
We see the CARES Act creating strong incentives for generous individuals to give to charity during these challenging times. While the Act does not promote contributions into a donor advised fund or supporting organization, there are many opportunities for donors to give back in meaningful ways.
First, donors can support the charities they care about with increased gifts and general operating support. As we’ve noted before, general operating support is the lifeblood for nonprofit organizations, especially in times of crisis. Donors who can maintain or even increase their general operating support for charitable organizations can help those organizations survive in the short term
Second, donors can consider giving to collaborative relief efforts at a local, regional and national level. The Chicago Community Trust is partnering with the United Way of Metro Chicago and other key organizations to support rapid response funds for the Chicago region and the state of Illinois broadly. We encourage donors to consider making cash gifts to one of these funds to take advantage of the charitable giving provisions in the CARES Act and of course to support neighbors in need. DAF holders can also support these initiatives by recommending grants from their accounts to one or more of these efforts.
Finally, we encourage donors to think about supporting critical needs on a year-round, ongoing basis. For example, Unity Fund addresses the basic needs of the region’s most vulnerable populations with grants throughout the year. We know the impact of the COVID-19 pandemic will be felt for months to come, and donors can support the medium- and long-term needs of organizations by investing in initiatives like Unity Fund now and in the future.
To learn more about these temporary changes and how you can get involved in supporting one or more of responsive funds, please contact your Philanthropic Advisor at The Trust.