The Restoration of Massachusetts’ State Charitable Tax Deduction

by Danielle Fleury, Director of Government Affairs

As of January 1, 2020, Massachusetts has met statutory triggers and has restored the state charitable tax deduction. The restoration comes 20 years after a state-level tax benefit for charitable giving was passed by voters with a 67% yes vote. Of the 43 states that have an income tax, 32 (74%) have a state/local charitable tax incentive. Here is some history on Massachusetts’ version of a state-level deduction, and why it matters now.

What will it do?

  • The state charitable tax deduction will enable taxpayers to claim a deduction on their state income tax for charitable donations made throughout the tax year. The deduction will create a tax incentive for giving that is available to taxpayers regardless of whether they itemize, and will first be available for donations made in calendar year 2021.

What are the key benefits?

  • For the people served by nonprofits: A state-level incentive will bolster charitable giving at a time when the people served by nonprofits need it the most. Charitable giving is the lifeblood of the nonprofit sector, and individual donations are particularly important, making up almost 70% of the total charitable contributions upon which nonprofits rely to accomplish their important missions.
  • For taxpayers: Taxpayers across the income spectrum give, and low and middle-income earners give at substantial rates. The vast majority of Massachusetts residents who will benefit from the state charitable deduction are low- or middle-income earners. Over 150,000 of them earn less than $50,000 per year, and 300,000 of them earn between $50,000 and $100,000.
  • For the Commonwealth: Nonprofits are an economic engine, and employ almost 18% of the Commonwealth’s workforce. Charitable giving goes almost exclusively to the delivery of critical services. Nonprofits frequently provide programmatic services for individuals that would otherwise look to government, often at a cost lower than comparable public services.

Why does this matter right now?

  • Individual giving is on the decline and it needs a boost. The 2017 federal tax reform package (The Tax Cuts and Jobs Act) changed the way that taxpayers file their federal taxes. Far fewer taxpayers itemize, and therefore fewer taxpayers realize a federal tax benefit from charitable giving.

What needs to be done?

  • The Governor’s FY21 budget assumes restoration of the deduction, and the House and Senate budgets should follow suit to preserve this benefit. Legislators should leave the state charitable tax deduction intact in adherence to the will of the voters, in accordance with long-standing statute, and as a safeguard against the harmful impacts of federal tax reform and other pressing demands upon the nonprofit sector.

With question or for more information on the state charitable tax deduction, please contact MNN’s Director of Government Affairs Danielle Fleury.