The fact that the charitable donations portion of the Tax Cuts and Jobs Act that Congress passed on Dec. 20 is creating uncertainty and confusion comes as no surprise to the United Way of Greater Topeka.
“We’ve been talking about this for quite some time,” said Jessica Lehnherr, president and CEO of the nonprofit organization. “There is a lot of confusion on what can be itemized and what can’t. We certainly anticipate that we’ll be impacted. A majority of our donors are middle class.”
The national United Way recently said that “because of our reliance on middle-class donors, cumulatively, United Ways across the U.S. will face losses between $256 to $455 million per year, significantly impacting their ability to help those who will now be in potentially greater need.”
Currently, a married couple can receive a tax break if all their itemized deductions equal $12,000 or more. The new law that goes into effect on Jan. 1 doubles the standard deduction for a married couple, meaning they can receive a tax break if they itemize deductions equal $24,000 or more.
The problem with that, many critics say, is that the incentive to make charitable donations goes away for many middle class Americans because they don’t receive a tax break unless they reach the annual $24,000 deduction threshold. Reaching that threshold involves a total number of deductions including those for medical expenses, mortgage interest and charitable donations.
Lehnherr said she’s concerned that people will continue making contributions to the United Way in 2018, not realizing that they can’t get a tax break unless all their deductions total more than $24,000 if they are married.
The United Way sent an appeal message out to donors this week, emphasizing that online contributions need to be made by midnight Sunday, with mailed donations postmarked by Saturday. The message also stressed that if one takes the standard deduction allowed by law next year, charitable contributions can’t be itemized for a tax deduction.
“If you have previously itemized your deductions, and think you may now switch to taking the standard deduction in 2018, maximize the tax advantages of your charitable gift by making your 2018 donation before the end of this year,” according to the message.
Lehnherr said it’s difficult to know how the new rules regarding charitable donations will directly impact Topeka’s United Way workplace campaigns that raised $2.8 million as of June 30, particularly donations made through payroll deductions.
Mary Beth Chambers, corporate communications manager for Blue Cross and Blue Shield of Kansas, said the health insurance company’s employees have the option to use a post-tax payroll deduction from each pay period or for a one-time donation.
“Of those employees who donate to United Way,” she said, “about 90 percent do so via the payroll deduction mechanism.”
While there are many questions still surrounding the new tax legislation, Chambers doesn’t expect that the Topeka-based company’s payroll deduction program for contributing to the United Way will change in 2018.
“We would imagine the payroll deduction for supporting the United Way will stay in place,” she said. “I don’t see that mechanism changing.”
According to the Arlington, Va.-based Council on Foundations, the new tax bill will “result in a decrease of $16-$24 billion in charitable giving every year, significantly decreasing the philanthropic sector’s ability to provide resources and services to people across the United States and abroad.”
“Obviously, there’s still a lot of unknowns on how the (tax) provisions will impact people as a whole,” said Barbara Duncan, vice president and senior wealth adviser for Clayton Wealth Partners for the past 12 years. “All of the different planning strategies won’t be clear until we work through that. For a lot of our clients, that won’t have a significant impact.”
Frank Henderson, deputy director of the Topeka Rescue Mission, said his biggest concern is that most married couples may take the $24,000 deduction allowed by the new tax law in lieu of itemizing their charitable donation and forego giving to their favorite nonprofit because the tax break incentive will no longer exist.
However, Henderson believes his concerns will largely be unfounded.
“Our experience is that Topeka is a generous community and they’re giving with their heart,” he said. “We truly believe they’re making those donations because they want to help someone who is less fortunate, rather than getting a tax break.”
Henderson said December is the largest month for contributions to the Rescue Mission, and some donations made to the homeless shelter have been larger than usual in the past several days.
“They know the needs that we have,” he said. “Contributions have been coming in steadily.”
In the meantime, Lehnherr said she and her staff, with the help of United Way’s corporate office, will continue emphasizing the need for contributions to the nonprofit organization, regardless of the tax benefits.
“So that charitable giving will stay intact,” she said, “and all indiviuduals can benefit from giving to charity.”