As April 15, commonly referred to as Tax Day, approaches, the Alliance for Charitable Reform will issue a series of articles examining the topics impacting the charitable sector as a result of the passage of the Tax Cuts and Jobs Act. This article discusses the surprise of some Americans upon filing their taxes for the first time after the full implementation of the TCJA. Click here to read part 1. Click here to read part 2.
Taxpayers are navigating uncharted territory this tax season as they file their taxes under a shifted tax code – and the anecdotes bear that out. We have seen news headlines since late January about the surprises many taxpayers are finding in their tax filings, and some of those surprises may be driven by the substantial reduction in the number of Americans who can itemize and deduct their charitable giving.
“The 2019 tax season has been marked by more uncertainty than most, both because of the government shutdown and changes from the Tax Cuts and Jobs Act. While it’s great to see a majority of Americans have filed their taxes and many have been receiving their refunds quickly, there’s still some uncertainty. Our study shows that taxpayers are facing surprises — both good and bad,” said Andrea Coombs, a tax specialist for NerdWallet.
Coombs is referring to an online poll of taxpayers conducted by NerdWallet who have filed their 2018 returns. The study found that some taxpayers were pleased with the surprises, while others were not so happy.
First, the surprises many liked. Nearly 32 percent of those surveyed reported their refund is higher than the previous year. Additionally, those receiving refunds reported that not only was it higher than the previous year but their refund was also higher than anticipated. Millennials reported receiving the largest refunds – $3,013, on average, compared with $2,944 for Gen Xers and $1,943 for baby boomers.
Others weren’t so happy. Approximately one-third (32 percent) of Americans who had to write a check to the Treasury with their tax return this year reported receiving a refund the previous year, and those eight million Americans weren’t happy about it. Likewise, the nearly 35 percent of taxpayers who reported that their refund is smaller compared to the previous year weren’t pleased either.
The bottom line is that we are all engaged in a learn-as-you-go exercise when it comes to the Tax Cuts and Jobs Act. It will take years before we have a clear understanding of the impact of tax reform on charitable giving – and this first year is something of a transition as many taxpayers will adjust their giving now that they know they cannot deduct charitable contributions. Brian Mittendorf, an accounting professor at Ohio State University, summed up the situation on Twitter:
Anecdotal observation: many people compiled all of their charitable receipts and filled out their 2018 taxes only then to realize the charitable gifts didn’t come into play. This will have a real impact on 2019 giving.
— Brian Mittendorf (@CountingCharity) March 7, 2019
This is a sentiment echoed by tax reporter Richard Rubin, who reported in February in the Wall Street Journal that it will take time for Americans to understand how the new tax law treats charitable gifts:
It could take a year or longer for donors and nonprofits to adjust, said Una Osili, associate dean of research at Indiana University’s Lilly Family School of Philanthropy. “It will take some time for both sides to fully adapt, modify, respond to the tax changes,” she said.
Leaders in the sector will need to track as much data as possible, both quantitative and anecdotal, to help paint the picture of the TCJA’s impact on giving. As the picture develops over time, we need to keep lawmakers informed and urge them to take action sooner rather than later to avoid potential real damage to the charitable community.
However, while it will take time for us to fully understand the impact of the TCJA on giving, we do have some preliminary data giving us a glimpse – and that data is concerning.
In the next post in ACR’s Tax Day series, we examine the early data on the impact of the TCJA on charitable giving.