The $2 Trillion COVID-19 Stimulus Package–the CARES Act–was passed into law on March 27th, 2020, and benefits are still in effect. The act was implemented to help the country #CombatCOVID; one significant way it continues to do so is by incentivizing charitable giving–which is incredibly important as the nation’s nonprofits support the most vulnerable communities and first responders on the front lines.
What does the bill say?
Section 2204. Allowance of partial above-the-line deduction for charitable contributions. The provision encourages Americans to contribute to churches and charitable organizations in 2020 by permitting them to deduct up to $300 of cash contributions, whether they itemize their deductions or not (Source: Senate Finance Committee).
What does it mean?
Giving is now partially pre-tax! Now individuals can donate $300, deduct that amount from their taxable income, and STILL take the standard deduction.
Why set a donation matching budget at $300/employee/year?
A simplified example.
Let’s say you take home $1,000 a year–so $1,000 is your taxable income.
Before, giving $300 would have been altruistic but done nothing to reduce your taxes. Uncle Sam would calculate your tax bill based on that $1,000 in taxable income. You would then take the standard deduction, subtract that from your tax bill, and pay Uncle Sam the net (or receive a refund if the net is negative).
Now, giving $300 is both altruistic and financially beneficial! You can deduct that $300 from your taxable income, which means Uncle Sam would calculate your tax bill based on $700 ($1000 - $300) instead of $1,000. You would then also take the standard deduction, which is now being subtracted from a smaller number, and pay Uncle Sam the net (or receive a refund if the net is negative).
Hopefully, this example shows you why companies that match donations match at least $300 a year to incentivize employees to do so through the company's donation matching program.