In 2017, lawmakers passed a comprehensive tax reform bill that included a new 21-percent tax on compensation over $1 million paid to nonprofit employees and officers. At first, it didn’t appear it would affect many nonprofit executives, however, the law was written to include compensation from “related organizations”, such as a private family business that funds a family foundation. So, if a family foundation has a volunteer officer with little or no salary who also works at the related family business, their compensation above $1 million is taxed at 21 percent, with the tax allocated between the business and foundation.
The charitable deduction is unique in that it incentivizes Americans to give something away, with no tangible benefit in return, to solve problems in their communities and around the world. However, the current charitable deduction is only available to taxpayers who itemize, which leaves out about 89 percent of taxpayer households. Since 2017, we’ve seen a concerning decline in individual charitable giving. That, compounded with the even more alarming decline in the number of American households giving to charity, does not bode well for the charitable sector as a whole. Charities rely upon a healthy combination of individual gifts and foundation grants to provide critical services in their communities, and foundations rely on individual giving to leverage the good work they’re doing to advance their mission. If individual giving declines, we all lose.
Along with our colleagues in the Charitable Giving Coalition, we are working with lawmakers on Capitol Hill to expand access to the charitable deduction to all taxpayers, regardless of whether they itemize. We believe all Americans should be encouraged to donate to the causes most important to them and receive a benefit for it, because when more Americans engage in civil society, our country and our democracy thrives.
A simplified private foundation excise tax has been a longtime priority for ACR. Prior to December 2019, the PF excise tax had a complicated, two-tier structure that often penalized outsized grantmaking. It was causing some organizations to pause before granting to, say, disaster relief, to consider the tax implications. Along with other national and regional organizations, ACR notched a “win” in 2019 and helped get a simplified 1.39-percent PF excise tax over the finish line and signed into law. Now, our priority is to protect the law change so private foundations can focus their time and resources on granting to organizations providing critical services in communities and around the world.