A few states have enacted legislation or issued guidance on changes by the Coronavirus Aid, Relief, and Economic Security (CARES) Act that:
- increased charitable deduction limits for cash contributions; and
- added an above-the-line deduction for individuals who do not itemize.
CARES Act Changes
IRC Sec. 170 generally limits a taxpayer’s deduction for charitable contributions.
The CARES Act increased the limit for cash contributions by corporate taxpayers from 10% to 25% of taxable income for the 2020 tax year. It also suspended the 60% adjusted gross income limit on cash contributions by individual taxpayers. An individual can deduct 100% of cash contributions made in 2020.
Under the CARES Act, taxpayers who do not itemize can claim a $300 above-the-line deduction for contributions to:
- nonprofit schools;
- nonprofit medical institutions; and
- other organizations described under IRC Sec. 170(b)(1)(A).
The deduction applies to qualified charitable contributions for the 2020 tax year.
North Carolina and Wisconsin Legislation
North Carolina legislation decoupled from the CARES Act changes to charitable deductions for individuals. The 60% limit continues to apply to taxpayers who claim North Carolina itemized deductions for the 2020 tax year. Taxpayers can carry forward amounts that exceed the limit for tax years beginning on or after January 1, 2021.
Individuals who claim the above-the-line deduction must add the amount to North Carolina taxable income.
The charitable deduction changes have no impact on North Carolina corporate income taxpayers. North Carolina requires an addition to federal taxable income for the deduction.
Wisconsin enacted legislation that adopts:
- the charitable deduction limits for corporate and personal income taxpayers; and
- the above-the-line charitable deduction for individuals.
Kentucky and Massachusetts Guidance
Kentucky and Massachusetts issued guidance on the CARES Act charitable deduction amendments.
- the charitable deduction limits for cash contributions in the 2020 tax year; or
- above-the-line charitable deduction for individuals.
Taxpayers will have to make adjustments on their Kentucky income tax return to account for the federal and state differences.
Massachusetts adopts the increase in the charitable contribution limit for corporate excise purposes because:
- federal conformity for computing the tax follows the IRC as currently in effect;
- the starting point for computing taxable income is federal taxable income; and
- there is no addition to federal taxable income for a taxpayer’s charitable contribution deduction.
Federal conformity for computing Massachusetts personal income tax does not follow the current IRC. So, Massachusetts does not allow the temporary increase in the charitable deduction limit for individuals. It also does not allow the above-the-line charitable deduction for individuals.
By Timothy Bjur, J.D.
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