The CARES Act–the Coronavirus Aid, Relief, and Economic Security Act

What is the CARES Act?

The CARES Act is a roughly $2 trillion economic stimulus plan that became law on March 27, 2020, and affects most sectors of the United States economy including charitable giving.

How does the CARES Act affect charitable giving?

There are three main reasons in which the CARES Act impacts charitable giving.

  1. It provides higher charitable deduction limits for cash gifts in the tax year 2020.
  2. It suspends the required minimum distribution from qualified retirement plans.
  3. It provides a tax benefit for non-itemizers.

What are the higher deduction limits for 2020?

Donors may claim a charitable deduction for up to 100% of adjusted gross income (AGI) for cash gifts to most public charities, which supersedes the ordinary charitable deduction limit of 60% of AGI.

This higher deduction does not apply to gifts to donor advised funds (DAFs), supporting organizations (SOs), private foundations, or split interest entities such as charitable remainder trusts or charitable lead trusts. The law is silent on charitable gift annuities. In addition, C corporations may deduct qualified contributions up to 25% of their taxable income, an increase from the ordinary 10% limit.

How does it affect the required minimum distribution (RMD) from qualified retirement plans?

Most RMDs for the tax year 2020 are waived and can be delayed until 2021; however, in certain tax situations, the higher deduction limit of 100% AGI may create an incentive to continue the RMD in 2020. An individual over age 70 ½ can still make qualified charitable distributions from an IRA to charity of up to $100,000 and exclude that amount from taxable income.

What is the charitable deduction for non-itemizers?

Donors who take the standard deduction and do not itemize may take a one-time adjustment to income of $300 (may be $600 for a married couple) for cash gifts to public charities, and again, not for gifts to private foundations, DAFs or SOs.

The above information provides a general overview that is not intended as tax or legal advice. Donors are encouraged to consult with their own professional advisors on how the CARES Act may apply to them.