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Financial Planning > Charitable Giving > Charitable Giving Deductions

House Floats 'Flexible Giving Accounts' for Employees

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A bill introduced in the U.S. House of Representatives on July 25 would enable employees to set aside money for charity and receive a tax break.

The Everyday Philanthropist Act (H.R. 4002), sponsored by U.S. Reps. Vern Buchanan,R–Fla., and Thomas Suozzi, D–N.Y., seeks to “empower everyday, working Americans to give to charity.”

It would incentivize employees to set up a flexible giving account through their employer. This would enable them to set aside a pretax portion of their paycheck to donate to a nonprofit of their choice, resulting in an immediate reduction in their taxable income.

Employees’ annual pretax contributions would top out at $2,700; gifts beyond that amount would be included in taxable income. There would be no minimum contribution.

The proposed legislation comes at a time when overall giving in the U.S. has plateaued. Last year, Americans’ donations to charity were virtually flat.

This owed in part to the tax overhaul, which doubled the standard deduction, resulting in a drop in the number of households that itemized deductions, from more than 45 million in 2016 to between 16 million and 20 million in 2018.

In a recent report, researchers suggested several policies that could increase the number of donor households, including an enhanced deduction that provides additional incentives for low- and middle-income taxpayers.

Employers would enjoy several benefits from encouraging their workers to set up flexible giving accounts. Their corporate social responsibility profile would improve as they were seen to be doing social good. Recent research found that eight in 10 employees prefer to work for socially responsible companies.

In addition, the amount of payroll taxes employers pay would be reduced because the FGAs would lower employees’ taxable income.

Another bill, the Charitable Giving Tax Deduction Act, would allow taxpayers to write off charity donations whether or not they itemize. That bill was introduced and sent to the House Ways and Means Committee in May 2018.

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