You might forgive Massachusetts nonprofit leaders for thinking they might be waiting for Godot. The Bay State’s universal charitable deduction was overwhelmingly passed by voters in 2000 before being paused amid economic concerns two years later. The measure was on the cusp of returning in 2020 just as the pandemic hit and the tax break was paused again.
As of January 1, finally, the state charitable deduction is back in effect. Cue Didi and Gogo.
The provision was to kick in when the income tax rate dropped to 5%, which occurred in January 2020 – just before the COVID-19 pandemic was declared. Then-Gov. Charlie Baker vetoed a one-year delay in the state charitable deduction, which had been supported by The Massachusetts Nonprofit Network (MNN), but was overridden by the state’s legislature in August 2021. That pushed the start date for the deduction to January 1, 2023.
MNN estimates that a charitable deduction would benefit more than 600,000 low- and middle-income donors in the Bay State.
Writing in the Boston Business Journal, MNN President & CEO Jim Klocke said because the deduction is universal, it will do much more than give the 600,000 people a deduction for their contributions. It creates the same opportunity for many more who have never itemized their federal deductions, and many of those are people with low or mid-level incomes.”
The state’s Department of Revenue estimates the charitable deduction would cost the state some $300 million while generating $6 billion in giving and deductions statewide.
Nonprofits are likely to benefit from donations by people motivated to give for tax purposes. “This may especially be true for people affected by the new millionaires’ tax that became effective [January 1, 2023] as a way to reduce their new tax obligations,” said Becky Crawford, chief advancement officer of the Pine Street Inn, a Boston-based homeless services provider.
“The Massachusetts charitable deduction comes at an opportune time. Inflation is hitting nonprofits hard, just as it’s hitting businesses. And nonprofits, like businesses, are concerned about the prospect of a recession. There’s never a good time for a recession, but to have one hit after — or even during — a period of high inflation would be especially painful,” Klocke wrote. “It’s a tool that every Massachusetts nonprofit can use to encourage donations and promote giving. Best of all, it will strengthen support for the work that nonprofits do every day, to the benefit of the people they serve.”
At the federal level, there’s been a push for years by nonprofits to get a universal charitable deduction that would allow non-itemizers to write off their deduction. A temporary measure was included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in December 2020. Taxpayers could deduct up to $300 for cash contributions to charities, a provision that expired at the end of 2021. Despite efforts by charities, it was not passed in the last Congressional session.
