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  • The nonprofit transportation benefit tax has been repealed.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.

MNN Statement on State Charitable Tax Deduction: “Individual Contributions are the Lifeblood of the Nonprofit Sector”

Earlier today, the Baker-Polito Administration announced that the state charitable tax deduction will be restored for charitable contributions made in calendar year 2021 and beyond.

MNN released this statement from CEO Jim Klocke on the reinstatement of the state charitable tax deduction:

“The state charitable deduction will provide a much-needed boost to individual charitable giving, which declined in 2018 for the first time in years due to changes in federal tax law. These changes stripped donors of their ability to itemize their charitable contributions on their federal tax returns.”

“Most of the people who give to nonprofits in Massachusetts are middle- and low-income earners. The state deduction will benefit hundreds of thousands of them each year. We need to support and promote charitable giving.”

“Individual contributions are the lifeblood of the nonprofit sector. Individual contributions to nonprofits are three times as great as the funds given by foundations and corporations combined.”

New Commonwealth Insights: The Census is Coming, and Nonprofits Should Prepare Now to Ensure Everyone Counts

Comm Insights 2019 3rd ed social media-minToday, we released the latest edition of Commonwealth Insights, “The Census is Coming: How Nonprofits Can Make Sure That Everyone Counts–and Why They Should.”

The Census is nearly here, and nonprofits around the Commonwealth should prepare now to mobilize their communities in support of a complete count. As trusted messengers, nonprofits can leverage existing assets and take advantage of new ones to raise awareness, help individuals access and complete the Census, and coordinate efforts with partners to maximize collective impact.

This edition of Commonwealth Insights features case studies of three nonprofits–Castle Square Tenants Organization, the Pioneer Valley Planning Commission, and the Chelsea Collaborative–working to ensure that their communities count in 2020. Their work can serve as a guide for other nonprofits.

The report is a practical guide that contains useful tips and resources for nonprofits to drive participation in one of the most foundational, high-stakes activities that communities undertake.

This is the third edition of Commonwealth Insights published in 2019. You can read all past editions of Commonwealth Insights at massnonprofitnet.org/CommonwealthInsights. Please feel free to reach out to us with feedback on this or any Commonwealth Insights issue.

We are grateful for the generous support of our organizational sustainers, the Barr Foundation, the Boston Foundation, and the Highland Street Foundation, which makes reports like Commonwealth Insights possible.

MNN Supports Policy Proposal to Expand Access to High Quality, Affordable Nonprofit Retirement Benefits

The nonprofit workforce is the lifeblood of the sector. Individuals working for nonprofits often forego higher salaries in order to dedicate their careers to advancing the public good. But many nonprofits struggle to offer the competitive benefits that help them to not only recruit and retain employees, but to recognize the value of their workforce. In addition, a growing number of people are not prepared for retirement. According to the National Institute on Retirement Security, the median retirement account balance is $0 among all working individuals. Even amongst those who have begun saving, the typical worker had a modest account balance of $40,000.

Recognizing this trend, Massachusetts Treasurer Deborah Goldberg launched the “Connecting Organizations to Retirement” (CORE) Plan – a statewide multiple employer 401(k) retirement plan available to Massachusetts nonprofits with 20 or fewer employees. This innovative plan allows nonprofits to focus on the primary mission of their organizations, while offering a comprehensive benefit to their employees. Currently, 63 small nonprofits around the Commonwealth are participating, helping employees to secure their financial futures.

While great strides have been made in enabling nonprofits to offer more competitive benefits for their employees, the CORE plan is currently limited by statute to those with 20 or fewer employees. On October 31st, MNN testified in support of H.36, An Act Relative to the 401(k) CORE Program, which would remove the cap and allow nonprofits of all sizes to participate.

Allowing nonprofit employers of any size to participate in the CORE Plan will increase access to this critical service. Increased enrollment will also assist in achieving economies of scale, making the plan more affordable overall to nonprofits across the state.

To join in our effort to allow nonprofits of any size to participate in the CORE plan, please contact your legislator today and voice your support of H.36.

To learn more about the CORE Plan, click here. Please contact MNN’s Director of Government Affairs, Danielle Fleury, with any questions.

New Commonwealth Insights: Massachusetts Nonprofits Generate Over 551,000 Jobs and $36 Billion in Wages

Comm Insights 2019 2nd ed website (1)-minToday MNN released the latest edition of Commonwealth Insights, “The Nonprofit Sector Jobs Engine And Strategies for Strengthening It.”

The new report draws on recently-released data from the U.S. Bureau of Labor Statistics to paint the most up-to-date picture of the nonprofit sector’s economic impact in Massachusetts. The data shows that in 2017, Massachusetts nonprofits generated 551,117 jobs and $36.1 billion in wages. Nonprofits comprised almost 18% of the total workforce, the fifth highest percentage in the country.

The data also shows that from 2013 to 2017, nonprofit employment in Massachusetts grew by 41,763 jobs, an increase of 8.2%, and annual nonprofit wages grew by $6 billion, an increase of 20%.

“The nonprofit sector’s economic impact is not only large, it’s growing at a rapid clip,” said Jim Klocke, CEO of MNN. “The roles of nonprofits as economic engines and as service providers are both crucial to protect.”

The report makes three policy recommendations in support of the Massachusetts nonprofit sector:

  • Preserve and grow charitable giving, including the creation of a federal universal tax deduction and the restoration of the Massachusetts state charitable tax deduction;
  • Streamline state-level reporting requirements to remove duplication and reduce costs associated with reporting;
  • Optimize employer policies so that they work for nonprofits as well as for-profits.

The most recent edition of Commonwealth Insights comes on the heels of a Giving USA Foundation report released in late June, which found that individual donations to American charities dropped by $3.2 billion nationwide in 2018 ($10.4 billion in inflation-adjusted dollars).

Previous editions of Commonwealth Insights have explored the potential impact of 2017’s federal tax reform law on Massachusetts nonprofits.

“The nationwide drop in charitable giving resulting from the change in the federal tax code is a concerning trend. The recommendations outlined in this new report will preserve and strengthen the nonprofit sector’s role as cornerstones of our communities,” added Klocke.

Commonwealth Insights publications highlight policy, issues, and trends important to the nonprofit sector published by MNN. This is the second edition of Commonwealth Insights in 2019. Earlier editions focused on federal government shutdowns, year-end fundraising strategies, the 2020 Census, and the impacts of federal tax reform. Prior editions can be viewed at www.massnonprofitnet.org/CommonwealthInsights.

MNN CEO on Drop in Charitable Giving: Bad News – And a Warning Signal

The report, “Giving USA 2019: The Annual Report on Philanthropy for the Year 2018” issued today by Giving USA, found that charitable giving decreased by 1.7% and that individual giving decreased by $10.4 billion nationwide in 2018. The Massachusetts Nonprofit Network (MNN) released the following statement from CEO Jim Klocke:

“This is bad news for the people served by nonprofits–and a warning signal about the end of 2019.

When the economy grows, giving should increase, and it usually does. But not in 2018.

As MNN’s Commonwealth Insights reports have outlined, the 2017 federal tax bill raised the cost of giving by 28% for tens of millions of people across the country. When the cost of something goes up by 28%, there will be an impact. Today’s Giving USA report documents the impact–a drop in individual contributions of over $10 billion nationwide in 2018. That drop will have real effects for the people served by nonprofits and the communities they live in, including here in Massachusetts.

Today’s news is a warning signal because not everyone affected by the federal tax bill realized it when they made their 2018 contributions. They do now: many learned that they lost the giving deduction this past spring. The question is now what happens to 2019 individual contributions. There is a real risk that they will drop again, and by even more than $10 billion.

What should we do? First, we should restore the charitable contributions tax deduction for the millions who lost it in 2018. Second, we must make it available to everyone. We should also encourage donors to increase their giving this year, so that the 2018 drop becomes an aberration. MNN is committed to pursuing these strategies that will support the strength, viability, and sustainability of the nonprofit sector.

The people served by nonprofits, and the communities they live in, deserve no less.”

Previous editions of MNN’s Commonwealth Insights reports have explored the potential impact of the 2017 federal tax bill on Massachusetts nonprofits. Click here to download, “From Challenges to Opportunities: How Nonprofits Can Make Sense of the New Tax Law” (2018). Click here to download, “Tax Reform: Up to $513 Million of Massachusetts Donations at Risk” (2017).

House Speaker DeLeo, Senate President Spilka, Secretary Kennealy Celebrate Nonprofit Awareness Day

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Yesterday, House Speaker Robert DeLeo, Senate President Karen Spilka, and Secretary of Housing and Economic Development Mike Kennealy joined hundreds at the State House to celebrate Nonprofit Awareness Day: A Celebration of Nonprofit Excellence, an awareness event honoring the contributions of nonprofits in Massachusetts. The celebration was hosted by the Massachusetts Nonprofit Network (MNN) and presented by Citizens Bank.

“Over 33,000 nonprofits are making a difference in every corner of the Commonwealth, adding significant contributions to the health and vitality of our communities,” said Jim Klocke, CEO of MNN. “Yesterday, we recognized 27 nonprofits that typify the excellence of the state’s nonprofit sector. We are also grateful for Citizens Bank for their continued support of the Nonprofit Awareness Day Celebration.

“Yesterday we celebrated the 33,000 nonprofit organizations that are the cornerstone of our communities,” said Jerry Sargent, President of Citizens Bank, Massachusetts. “At Citizens Bank, we are honored to partner with the Massachusetts Nonprofit Network and celebrate the remarkable work of over half a million employees providing valuable resources for our fellow citizens day in and day out.”

Nonprofit Excellence Awards were presented to four organizations and two professionals that exemplified the innovative and effective work of nonprofits across Massachusetts. The winners were nominated by peers and community members and were selected by an independent panel of nonprofit and business leaders. This year, the independent panel selected 27 finalists for the Nonprofit Excellence Awards from almost 100 nominations.

The Nonprofit Excellence Award winners were:

In the month leading up to Nonprofit Awareness Day, MNN’s #MAkingadifference social media campaign engaged hundreds of nonprofit and business leaders on social media to communicate the positive impact of nonprofits across the state. Participants in the social media campaign shared thousands of pictures, stories, and statistics that illustrated the depth and breadth of the state’s nonprofit sector.

Policy Alert: Encourage Your State Senator to Support the Complete Count Grant Program

Last Thursday, Senator Sal DiDomenico filed a $5 million budget amendment (FY2020-SE-14) to the State Senate’s version of the budget to support the Complete Count Grant Fund. The Fund would support direct outreach by community-based nonprofits during the 2020 Census. MNN encourages nonprofits to reach out to their state senators to ask them to support this amendment. Nonprofits are trusted messengers and will play a key role in reaching hard-to-count communities during the 2020 Census. The participation of these communities is critical to making sure Massachusetts receives adequate federal funding and political representation in the next decade.

 

Click this link to find and contact your state senators. Click here for additional resources for nonprofits to participate in the 2020 Census.

U.S. Department of Labor Seeking Public Comments on New Overtime Rule

The U.S. Department of Labor (DOL)’s proposed new overtime rule was published in the Federal Register. The new rule would:

 

  • Raise the salary minimum for exemption as an executive, administrative, or professional employee from $455 per week ($23,660 per year) to $679 per week ($35,308 per year).
  • Allow employers to satisfy up to 10% of the salary minimum through non-discretionary bonuses, incentives, and/or commissions that are paid annually or more frequently.
  • Raise the threshold for exemption as a “highly compensated employee” to $147,414 in total annual compensation.
Members of the public can submit written comments on the proposed rule here until May 21, 2019.

Policy Alert on State Appropriation for 2020 Census Outreach

Today the Massachusetts House Ways and Means Committee released its FY 2020 state budget recommendations. This version contained a $2 million appropriation to support Census outreach through a statewide Complete Count Grant Program. The purpose of this program is to ensure an accurate 2020 Census count by supporting nonprofit organizations with competitive grants for direct outreach to hard-to-count communities in Massachusetts.

MNN applauds House leadership, members, and the House Ways and Means Committee for making a strategic investment in efforts to ensure a complete count. Census data determine political representation and the allocation of more than $16 billion in federal funds for the Commonwealth every year. The 2020 Census faces unprecedented challenges that will make achieving an accurate count difficult.

Today’s release of the House Ways and Means recommendations will be followed by deliberation by the full House of Representatives, before the Senate Ways and Means Committee issues its budget recommendations next month. MNN encourages members to take the following steps:

  • Contact your state representatives to say thank you and encourage them to include the $2 million appropriation for the Complete Count Grant Program in their final budget.

  • Contact your state senators and ask them to create an appropriation for the Complete Count Grant Program in their version of the budget.

Click this link to find and contact your legislators.

Contact MNN’s Director of Government Affairs Danielle Fleury with any questions.