Donors Will Have To Wait Longer For Deductions

A tax deduction for charitable contributions that’s been 20 years in the making will have to wait at least another year in Massachusetts.

Both houses of the state Legislature overrode Gov. Charlie Baker’s veto, pushing the start date for the charitable deduction another year, to Jan. 1, 2023. The House voted 124-35 and the Senate voted 34-6 to override the veto.

A deduction was approved by 72% of voters in November 2000 but has been deferred since 2001. The provision was to kick in when the income tax rate dropped to 5%, which occurred in January 2020. The legislature, however, delayed the deduction again due to the pandemic.

The Massachusetts Nonprofit Network (MNN) estimates that a charitable deduction would benefit more than 627,000 low- and middle-income donors. According to MNN, more than 80% of nonprofits reported in a statewide survey that they rely on individual giving, more than any other form of support. In the wake of the pandemic, many organizations are operating with six months or less in cash on hand.

The Republican governor signed a $47.6-billion state budget for 2022 on July 16. MNN supported Baker’s veto of the one-year delay, citing healthy revenue projections by the state. The deduction is estimated to be worth an estimated $64 million in the current budget and $300 million annually.

“Individual donations are a critical form of support for nonprofit organizations — from food pantries to shelters, childcare and youth centers, human service organizations, and others working every day to meet the basic needs of residents across the Commonwealth,” CEO Jim Klocke said via a statement.

A universal charitable deduction of $300 ($600 for couples) at the federal level is due to expire at the end of this year.

With healthy revenue projections for the road ahead, MNN encouraged the administration and legislature to work together on a solution Legislature to restore the charitable giving benefit for taxpayers and nonprofits across the Commonwealth.

Meanwhile, the Arizona state legislature approved a state budget that ties the charitable deduction to the rate of inflation. The increase in the deduction initially was introduced via H.B. 2113 by Rep. Shawnna Bolick (R-Phoenix) before being added to the final state budget, which was signed in July by Gov. Doug Ducey.

“Even before the impact of the coronavirus pandemic created staggering financial challenges for nonprofits across the state, the nonprofit sector was facing an estimated $323 million annual loss due to tax law changes at the federal and state levels,” Alliance of Arizona Nonprofits CEO Kristen Merrifield said.

In 2019, the state legislature allowed a charitable deduction regardless of income level or whether taxpayers took the standard deduction, allowing taxpayers to deduct up to 25% of charitable donations at the state level. The federal Tax Cuts & Jobs Act of 2017 doubled the standard deduction from about $12,000 to $24,000, leading to a drop in the number of taxpayers that itemize, from about one-third to 10%.