As we begin the New Year, changes in the federal income tax law could negatively impact NFP organizations. Let’s start with charitable contributions. First, the $300 ($600 for married couples) charitable contribution for nonitemizers is set to lapse. Smaller donors may be less willing to make donations to their favorite charities. On a larger scale, the cap on corporate charitable contributions will be reduced from 25% of taxable income before charitable contributions to 15% of the same number. Additionally, individuals could donate 100% of their adjusted gross income to charity in 2021. That cap will be reduced to 60% in 2022.
These provisions were enacted to assist NFP organizations during the pandemic. Retaining them does not seem to have been a high priority in the recent negotiations between the Biden Administration and Congress in passing the infrastructure bill and Build Back Better proposals. It seems fairly certain that these provisions will in fact lapse since there doesn’t seem to be a lot of momentum behind them. The Biden Administration campaigned on increasing corporate taxes and taxpayers with an adjusted gross income over $400,000, those more likely to donate a higher percentage of their AGI to charity. It seems unlikely there will be any wind behind the sails of giving additional tax deductions to those groups the Administration said were not paying their fair share of taxes already.
On the cost side of the ledger, the IRS mileage reimbursement rate will increase by 2.5 cents from 2021 to 58.5 cents in 2022, an almost 4.5% increase. This jump reflects the recent inflation experienced in the American economy. The new rate will continue to put cost pressure on NFP organizations who may not be able to afford even the current reimbursement rates for their employees. The aforementioned inflation can also deter donations to NFP organizations as salaries and wages struggle to keep up with increased costs.
Many other provisions of the tax code potentially affecting NFP organization stakeholders such as the enhanced child tax credit and earned income tax credit were included in the Build Back Better bill, recently torpedoed by the projected “No” vote of Senator Joe Manchin. NFP management will need to watch what happens to the bill in 2022. The best bet at this point is for Democrat Congressional leaders to break up the bill into smaller pieces and then try to sell them one at a time to Manchin, who would provide the crucial vote for passage in the Senate. If this were to happen, perhaps some of the current provisions would be reintroduced and become retroactive to the beginning of the year. Only time will tell if this will happen. This course of action seems unlikely in the heated political discussions of today, but cooler heads may prevail in the months ahead.
Mark Koscinski CPA D.Litt. 