Heading into 2020: 3 Tax Law Updates that Impact Nonprofits

by Danielle Fleury, Director of Government Affairs

The end of 2019 and beginning of the new year brings changes at the federal and state level that impact nonprofits all across the Commonwealth. Here are three policy updates, summarized below, that nonprofits should be aware of:

Federal updates

  • The nonprofit transportation benefit tax has been repealed.

Strong advocacy from the nonprofit sector resulted in Congress supporting nonprofits in one of their last major actions of 2019. On December 20, 2019, the President signed H.R. 1865–a bipartisan appropriations bill–which included a repeal of the unrelated business income tax (UBIT) on transportation benefits, known as the “nonprofit parking tax.” Federal tax reform in 2017 had created this new 21% tax on certain commuting and parking benefits given to nonprofit employees. This is a retroactive repeal, meaning that nonprofits that had made payments under this new tax will be able to claim refunds. MNN joined state and national partners in calling for a repeal of this burdensome tax, and thanks nonprofits across Massachusetts for sharing their stories of impact and helping to make a strong case for repeal.

  • A change has been made to donors giving through IRA’s.

Since 2017 federal tax reform changed tax incentives for charitable giving, MNN has pointed out several strategies that nonprofits should know about in order to help donors maintain a tax benefit for their donations. One of these strategies–highlighted in the November edition of MassGives –applies to older donors making Qualified Charitable Distributions (QCDs) from their IRAs. The funding bill signed by the President on December 20 increased the age at which individuals must start making required minimum distributions–from 70 ½ to 72. Nonprofits should still promote this method of making tax deductible contributions, but should note the new age limit when discussing required minimum distributions.

State update

  • The state charitable tax deduction is returning.

Taxpayers and nonprofits in Massachusetts are poised to realize a new charitable giving benefit. On January 1, 2020, the state income tax rate in Massachusetts dropped to 5%. This prompts the return of the state charitable tax deduction, which is currently set in state statute to become available to taxpayers for contributions made in 2021 and beyond. While taxpayers are accustomed to writing off charitable contributions when itemizing their federal tax returns, the state charitable deduction will apply to contributions regardless of whether Massachusetts filers itemize or not. This incentive–which originated when Massachusetts voters approved a 2000 ballot initiative–will help offset concerning trends in the decline in individual giving, since federal tax policy altered the federal tax benefit that individuals receive for making charitable contributions.