Updated to include important new provisions outlined in the Consolidated Appropriations Act of 2021 in effect as of December 27, 2020.
The Consolidated Appropriations Act of 2021 is the sixth COVID-19 related bill enacted by the US Congress, being preceded by the Paycheck Protection Program Flexibility Act of 2020, the Paycheck Protection Program and Health Care Enhancement Act of 2020, the Coronavirus Aid Relief and Economic Security Act—also known as the CARES Act, the Coronavirus Preparedness and Response Supplemental Appropriations Act, and the Families First Coronavirus Response Act.
The CARES Act provided significant temporary tax relief and charitable giving benefits. The Consolidated Appropriations Act of 2021 enacted on December 27, 2020, extends these benefits for one additional year.
What are the federal income tax deductions for charitable contributions included in the CARES Act and how are these impacted by the Consolidated Appropriations Act of 2021?
The CARES Act made a new charitable deduction available to individual taxpayers that do not itemize their deductions. This benefit, also referred to as a universal deduction, allows for a charitable deduction for cash contributions to qualifying public charities of up to $300 per individual. The recently enacted Consolidated Appropriation Act of 2021 further extends this benefit permitting a charitable deduction of up to $600 on their 2021 federal income tax return for couples filing jointly. This is an above-the-line contribution that is deducted from the individual taxpayer’s income prior to the calculation of their adjusted gross income.
In addition to the universal deduction, the CARES Act provides incentives for both individuals and corporations by temporarily increasing the available deductions on qualified charitable contributions. The Consolidated Appropriations Act of 2021 extends these increased limits through 2021:
- Individual taxpayers who itemize their deductions can deduct 100% of their adjusted gross income on their 2021 federal income tax return. Beyond the scope of the CARES Act, as supplemented by the Consolidated Appropriations Act of 2021, the deduction for qualified charitable contributions made by itemizing individual donors is limited to 60% of their adjusted gross income.
- Corporations can deduct 25% of taxable income in 2021. Up from the 10% limit which is generally applicable for corporations outside of the CARES Act as supplemented by the Consolidated Appropriations Act of 2021.
What conditions need to be met to qualify for the enhanced tax benefits?
To trigger these new benefits, both individual and corporate taxpayers have to make a qualified charitable contribution. The increased limits are applicable only to cash donations. Contributions of any kind of property, including marketable securities, real assets, or otherwise, do not qualify. To qualify, the cash contributions have to be made, with a few exceptions, to a public charity. The Consolidated Appropriations Act of 2021 does not modify these requirements.
Are charitable contributions to a private foundation considered “qualified contributions” under the CARES Act? How about donations to supporting organizations?
There are certain limited types of private foundations that would qualify, but by and large, family foundations, corporate foundations, and private non-operating foundations would not qualify as a recipient. Supporting organizations under code Section 509(a)(3)—charities that carry out their exempt purposes by supporting other exempt organizations, usually other public charities—are also not eligible recipients of these contributions. This is especially important to note within the context of COVID-19 relief work, as many supporting organizations are affiliated with institutions like hospitals and universities. The Consolidated Appropriations Act of 2021 does not modify these provisions.
A “qualified charitable contribution” is a charitable contribution: a) made in cash; b) allowable under IRC §170; c) made to an organization described in IRC §170(b)(1)(A) (i.e. 501(c)(3) and certain other charitable organizations), and not a supporting organization described in IRC §509(a)(3); and d) is not for the establishment of a new, or maintenance of an existing, donor advised fund. In addition, a qualified charitable contribution does not include any amount which is carried over from a prior tax year.
Are the enhanced tax benefits applicable to the charitable contributions made into a Donor Advised Fund (DAF)?
Contributions to DAFs do not qualify for the enhanced benefits under the CARES Act as supplemented by the Consolidated Appropriations Act of 2021. Only those 501(c)(3) organizations and DAF sponsoring charities that offer the option of restricted and not donor-advised giving can accept contributions that qualify under the CARES Act.
Donors partnering with CAF America can make a restricted gift to benefit a specific organization that is pre-approved and eligible to receive charitable funding through CAF America. Additionally, donors have the option to make a gift to a restricted fund established at CAF America, also known as an area of interest fund. Such gifts are qualified contributions and will trigger the enhanced benefits provided by the CARES Act as supplemented by the Consolidated Appropriations Act of 2021. See CAF America’s COVID-19 Response page for an up-to-date list of eligible organizations responding to the coronavirus pandemic worldwide.
Are the enhanced benefits restricted to charitable gifts that support COVID-19 related relief efforts?
The donation does not have to be related to COVID-19 relief efforts. As long as the requirements discussed above are met, the universal deduction and the increased deduction limits are applicable to charitable gifts going to any cause the donor wants to support.
Are the increased deductions limited to charitable contributions made in 2020?
The enhanced tax relief and charitable giving benefits provided by the CARES Act are temporary. While originally set to expire on December 31, 2020, the Consolidated Appropriations Act of 2021 has extended these benefits through 2021.