Special rule helps most people get a deduction of up to $600 for gifts to charity; National Council of Nonprofits and Independent Sector highlight how donations can help the nation’s charitable community

WASHINGTON — The Internal Revenue Service joined today with several leading nonprofit groups to highlight a special tax provision that allows more people to deduct donations to qualifying charities on their 2021 federal income tax return.

The Independent Sector and National Council of Nonprofits joined with the IRS to highlight this pandemic-related provision where married couples filing jointly can deduct up to $600 in cash donations and individual taxpayers can deduct up to $300 in donations.

Under the temporary law, taxpayers don’t need to itemize deductions on their tax returns to take advantage of this, which creates tax-favorable donation options not normally available to about 90 percent of tax filers. Ordinarily, people who choose to take the standard deduction cannot claim a deduction for their charitable contributions. But this special provision permits them to claim a limited deduction on their 2021 federal income tax returns for cash contributions made to qualifying charitable organizations by year’s end, Dec. 31, 2021.

At a time when many charitable groups are struggling during the pandemic, the IRS highlights the new provision and urges people to make sure they donate to a qualifying charity. The special Tax Exempt Organization Search tool on IRS.gov can help people make sure they donate to a qualified charity.

“The pandemic has created unique challenges for tax-exempt organizations, and we want to make sure people don’t overlook this special tax deduction that’s available this year,” said Sunita Lough, IRS Commissioner of the Tax Exempt and Government Entities division.  “Donations to qualifying charities can reduce people’s tax bill when they file in 2022.”

Leaders from the National Council of Nonprofits and the Independent Sector, two prominent organizations representing the nation’s charitable groups, highlighted that the special tax provision can provide additional assistance to organizations hit hard by the pandemic. Some groups have seen reduced charitable donations and others have seen increased demand for their services during this unprecedented period.

“At a time when nonprofits continue to see immense demand for services, are facing significant challenges hiring and retaining staff to deliver those services--every donation counts," said David L. Thompson, Vice President of Public Policy at National Council of Nonprofits. "We’re thankful that the universal (or non-itemizer) deduction is available through the end of the year to encourage every taxpayer give a little bit more to the missions they care about.”

“Over the past two years, charities have helped America confront generational health, economic and social crises. They have answered the call to serve their communities despite facing lost revenue, disrupted operations and dramatically increased need,” said Daniel J. Cardinali, president and CEO of Independent Sector. “Congress has sent a powerful message that everyone – not just those who itemize on their taxes – has a role to play in helping meet this moment, and we know people in America will respond in kind. We hope charitable contributions and deductions will increase in the coming years.”

Included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted in March 2020, a more limited version of this temporary tax benefit originally only applied to tax-year 2020. The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted last December, generally extended it through the end of 2021.

Nearly nine in 10 taxpayers now take the standard deduction and could potentially qualify. Under this provision, tax year 2021 individual tax filers, including married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions made to qualifying charities during 2021. The maximum deduction is increased to $600 for married individuals filing joint returns.

Cash contributions include those made by check, credit card or debit card as well as amounts incurred by an individual for unreimbursed out-of-pocket expenses in connection with their volunteer services to a qualifying charitable organization. Cash contributions don't include the value of volunteer services, securities, household items or other property.

The IRS reminds taxpayers that to receive a deduction, they must donate to a qualified charity. To check the status of a charity, they can use the IRS Tax Exempt Organization Search tool.

Cash contributions to most charitable organizations qualify for a deduction. But contributions made either to supporting organizations or to establish or maintain a donor advised fund do not. Contributions carried forward from prior years do not qualify, nor do contributions to most private foundations and most cash contributions to charitable remainder trusts.

In general, a donor-advised fund is a fund or account maintained by a charity in which a donor can, because of their donor status, advise the fund on how to distribute or invest amounts contributed by the donor and held in the fund. A supporting organization is a charity that carries out its exempt purposes by supporting other exempt organizations, usually other public charities.

The IRS encourages all donors to be wary of scams masked as charitable solicitations. Criminals create fake charities to take advantage of the public’s generosity. Fake charities once again made the IRS's Dirty Dozen list of tax scams for 2021. In October, the IRS also joined international organizations and other regulators in highlighting the fight against charity fraud.

Keep good records

Special recordkeeping rules apply to any taxpayer claiming a charitable contribution deduction. Usually, this includes obtaining an acknowledgment letter from the charity before filing a return and retaining a cancelled check or credit card receipt for contributions of cash.

For details on the recordkeeping rules for substantiating gifts to charity, see Publication 526, Charitable Contributions, available on IRS.gov.

Revenue Procedure 2021-54 prescribes discount factors for the 2021 accident year for insurance companies to compute discounted unpaid losses under § 846 of the Internal Revenue Code and discounted estimated salvage recoverable under § 832. 

Revenue Procedure 2021-54 will be in IRB:  2021-52, dated 12/27/2021.

Today, the IRS published the latest executive column “A Closer Look,” which features Sunita Lough, Commissioner, Tax Exempt and Government Entities Division, providing information for taxpayers on charitable giving. “We are committed to ensuring that taxpayers who generously make a difference through their charitable support are aware of the relief the government provides for them,” said Lough. Read more here. Read the Spanish version here.

“A Closer Look” is a column from IRS executives that covers a variety of timely issues of interest to taxpayers and the tax community. It also provides a detailed look at key issues affecting everything from IRS operations and employees to issues involving taxpayers and tax professionals.

Check here for prior posts and new updates.

Today, the IRS published the latest executive column “A Closer Look,” which features Fred Schindler, Director, Collection, Small Business/Self-Employed, discussing how the IRS’s Collection organization has taken a number of actions to help taxpayers since the onset of COVID-19, including some policy changes that will continue beyond the pandemic. “The IRS’s Collection organization has played an important role in efforts to implement economic relief measures passed by Congress,” said Schindler. “We will continue to carry out our mission of collecting delinquent taxes and securing delinquent tax returns through the fair and equitable application of the tax laws while respecting taxpayer rights.” Read more here. Read the Spanish version here.

“A Closer Look” is a column from IRS executives that covers a variety of timely issues of interest to taxpayers and the tax community. It also provides a detailed look at key issues affecting everything from IRS operations and employees to issues involving taxpayers and tax professionals.

Check here for prior posts and new updates.

In the summer, the Treasury Department and the IRS finalized Schedules K-2 and K-3 for Forms 1065, 1120-S, and 8865 for tax year 2021. The schedules are designed to provide greater clarity for partners and shareholders on how to compute their U.S. income tax liability with respect to items of international tax relevance, including claiming deductions and credits. The Treasury Department and the IRS also finalized instructions associated with the Schedules K-2 and K-3. However, the tax year 2021 Forms, to which Schedules K-2 and K-3 must be attached, have not yet been finalized. Questions have arisen whether the Schedules K-2 and K-3 must be attached to tax year 2020 Forms for partnerships or S corporations with 2021 short tax years; or, in the case of Form 8865, filers of Form 8865 with 2021 short tax years. New FAQs address questions concerning Schedules K-2 and K-3 with respect to 2021 short tax years for pass-through entities and filers of Form 8865.

WASHINGTON — The Internal Revenue Service today reminded retirement plan participants and individual retirement account owners that payments, called required minimum distributions, must usually be taken by Dec. 31.

Required minimum distributions (RMDs) generally are minimum amounts that retirement plan account owners must withdraw annually starting with the year they reach 72 or, if later, the year they retire. However, if the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, the RMDs must begin once the account holder is age 72, even if they’re still working. RMD amounts not timely withdrawn from accounts may be subject to penalties.

Individuals who reached 70 ½ in 2019, (70th birthday was June 30, 2019 or earlier) did not have an RMD due for 2020, but will have to take one by Dec. 31, 2021.

Individuals who reach 72 in 2021 (and their 70th birthday was July 1, 2019 or later) have their first RMD due by April 1, 2022.

The required distribution rules apply to:

Roth IRAs do not require distributions while the original owner is alive.

An IRA trustee, or plan administrator, must report the amount of the RMD to the IRA owner. An IRA owner, or trustee, must calculate the RMD separately for each IRA owned. However, they can choose to withdraw the total amount from one or more of the IRAs. In contrast, RMDs required from workplace retirement plans must be taken separately from each plan. Not taking a required distribution, or not withdrawing enough, could mean a 50% excise tax on the amount not distributed.

The RMD is based on the taxpayer’s life expectancy and their account balance. Often, a trustee will use Form 5498, IRA Contribution Information, to report the RMD to the recipient. For most taxpayers, life expectancy used to calculate the RMD is based on Uniform Lifetime Table III in Publication 590-B, Distributions from IRAs. Individuals can use online worksheets on IRS.gov to figure the RMD.

2020 RMDs
An IRA owner or beneficiary who received an RMD in 2020 had the option of returning it to their account or other qualified plan to avoid paying taxes on that distribution. A 2020 RMD that qualified as a coronavirus-related distribution may be repaid over a 3-year period or have the taxes due on the distribution spread over three years. A 2020 withdrawal from an inherited IRA could not be repaid to the inherited IRA but may be spread over three years for income inclusion.

IRS online tools and publications can help
Taxpayers can find frequently asked questions, forms and instructions and easy-to-use tools at IRS.gov.

• FAQs regarding Required Minimum Distributions
• Individual Retirement Arrangements (IRAs)

Coronavirus Relief for Retirement Plans and IRAs

In the summer, the Treasury Department and the IRS finalized Schedules K-2 and K-3 for Forms 1065, 1120-S, and 8865 for tax year 2021. The schedules are designed to provide greater clarity for partners and shareholders on how to compute their U.S. income tax liability with respect to items of international tax relevance, including claiming deductions and credits. The Treasury Department and the IRS also finalized instructions associated with the Schedules K-2 and K-3. However, the tax year 2021 Forms, to which Schedules K-2 and K-3 must be attached, have not yet been finalized. Questions have arisen whether the Schedules K-2 and K-3 must be attached to tax year 2020 Forms for partnerships or S corporations with 2021 short tax years; or, in the case of Form 8865, filers of Form 8865 with 2021 short tax years. New FAQs address questions concerning Schedules K-2 and K-3 with respect to 2021 short tax years for pass-through entities and filers of Form 8865.

IRS Office of National Public Liaison

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WASHINGTON — The Internal Revenue Service is seeking qualified applicants for nomination to the Electronic Tax Administration Advisory Committee (ETAAC).

The ETAAC is an organized public forum for discussion of issues in electronic tax administration, such as prevention of identity theft and refund fraud. The committee supports the overriding goal that paperless filing should be the preferred and most convenient method of filing tax and information returns. ETAAC members work closely with the Security Summit, a joint effort of the IRS, state tax administrators and private-sector tax partners to fight electronic fraud.

The IRS is looking for up to 10 qualified individuals who will serve three-year terms beginning in September 2022. Applicants should have experience in such areas as state tax administration, cybersecurity and information security, tax software development, tax preparation, payroll and tax financial product processing, systems management and improvement, and implementation of customer service initiatives. The IRS also strongly encourages applications from people representing the viewpoints of average taxpayers, including consumer advocates and others with an interest in tax issues.

Applications will be accepted through Jan. 31, 2022.

Nominations of qualified individuals may be made by letter and received from organizations or the individuals themselves. Applicants should complete the ETAAC application and include a short statement of interest and a resume. Applicants should describe and document their qualifications, past and current affiliations, and dealings with cybersecurity and electronic tax administration.

Applicants must complete and submit a tax check waiver form and undergo an IRS practitioner background check and an FBI background check. Information on the tax check waiver and FBI background check will be provided upon receipt of application. More information can be found at: Apply for Membership on the Electronic Tax Administration Advisory Committee (ETAAC) | Internal Revenue Service (irs.gov).

ETAAC is a Federal Advisory Committee established by the Internal Revenue Service Restructuring and Reform Act of 1998.
 
Questions about the ETAAC and the application process can be e-mailed to publicliaison@irs.gov.

WASHINGTON – The Internal Revenue Service today encouraged taxpayers to take important actions this month to help them file their federal tax returns in 2022, including special steps related to Economic Impact Payments and advance Child Tax Credit payments.

This is the second in a series of reminders to help taxpayers get ready for the upcoming tax filing season. A special page, updated and available on IRS.gov, outlines steps taxpayers can take now to make tax filing easier in 2022.

Here are some key items for taxpayers to consider before they file next year.

Check on advance Child Tax Credit payments
Families who received advance payments will need to compare the advance Child Tax Credit payments that they received in 2021 with the amount of the Child Tax Credit that they can properly claim on their 2021 tax return.

Taxpayers who received less than the amount for which they're eligible will claim a credit for the remaining amount of Child Tax Credit on their 2021 tax return. Taxpayers who received more than the amount for which they're eligible may need to repay some or all of the excess payment when they file.

In January 2022, the IRS will send Letter 6419 with the total amount of advance Child Tax Credit payments taxpayers received in 2021. People should keep this and any other IRS letters about advance Child Tax Credit payments with their tax records. 

See Reconciling Your Advance Child Tax Credit Payments on Your 2021 Tax Return for more information.

Eligible families who did not get monthly advance payments in 2021 can still get a lump-sum payment by claiming the Child Tax Credit when they file a 2021 federal income tax return next year. This includes families who don’t normally need to file a return.

Economic Impact Payments and claiming the Recovery Rebate Credit
Individuals who didn't qualify for the third Economic Impact Payment or did not receive the full amount may be eligible for the Recovery Rebate Credit based on their 2021 tax information. They’ll need to file a 2021 tax return, even if they don't usually file, to claim the credit.

Individuals will also need the amount of their third Economic Impact Payment and any Plus-Up Payments received to calculate their correct 2021 Recovery Rebate Credit amount when they file their tax return. Ensuring they use the correct payment amounts will help them avoid a processing delay that may slow their refund.

In early 2022, the IRS will send Letter 6475 that contains the total amount of the third Economic Impact Payment and any Plus-Up Payments received. People should keep this and any other IRS letters about their stimulus payments with other tax records. Individuals can also log in to their IRS.gov Online Account to securely access their Economic Impact Payment amounts.

See IRS.gov/rrc for more information.

Charitable deduction changes
Taxpayers who don't itemize deductions may qualify to take a charitable deduction of up to $600 for married taxpayers filing joint returns and up to $300 for all other filers for cash contributions made in 2021 to qualifying organizations. For more information, read Publication 526, Charitable Contributions.

Get banked to get ready to direct deposit
Direct deposit gives taxpayers access to their refund faster than a paper check. Those without a bank account can learn how to open an account at an FDIC-insured bank or through the National Credit Union Locator Tool. Veterans should see the Veterans Benefits Banking Program for access to financial services at participating banks.

Links to online tools, publications and other helpful resources are available at IRS.gov/getready.

Notice 2021-65 provides guidance regarding the retroactive termination of the employee retention credit in the fourth calendar quarter of 2021 for employers who are not recovery startup businesses. The notice provides guidance regarding how the rules apply to recovery startup businesses during the fourth quarter of 2021. The notice also provides guidance to employers who received an advance payment or reduced deposits in anticipation of claiming the employee retention credit, but who are ineligible to claim the credit due to the change in law, on how they pay the advance and timely make required deposits, as well as whether they are eligible for relief from penalties. 

Notice 2021-65 will be in IRB:  2021-51, dated December 20, 2021.