On the heels of the House tax reform bill, the U.S. Senate is now considering its own version of the “Tax Cuts and Jobs Act.”
There are a number of similarities and differences between the House and Senate tax reform bills in process that are relevant to individuals, businesses, and nonprofits. If passed in each chamber, the Senate and House iterations must be reconciled before being presented for Presidential approval.
The summary below focuses on some of the most important aspects of the two bills that would impact churches and ministries as tax-exempt organizations.
Potential Impact on Charitable Giving
Both the House and Senate versions of the bill currently call for a near-doubling of the standard deduction, a change that studies show could reduce charitable giving to nonprofit organizations by billions each year.1
An important amendment has been proposed by Senators Wyden and Stabenow that would offset some of this impact by creating a “universal” charitable deduction (available to all taxpayers, regardless of whether they itemize) subject to some limitations. The Senate Finance Committee will be voting soon on whether to incorporate this change.
Other Possible Changes Relevant to Nonprofits
Churches and ministries may also be interested in several of the following tax reform proposals at play in the House and Senate, as summarized in the latest edition of the EO Tax Journal (see 2017-221):
Senate bill retains estate tax but doubles the exemption amount; House bill also doubles exemption amount but eliminates estate tax after 2023
No mention of repealing Johnson Amendment in Senate bill; House bill has change to allow some political activity by churches, subsequently expanded to all 501(c)(3)s
Excise tax on excess tax-exempt organization executive compensation same in both bills [plus elimination of the rebuttable presumption of reasonableness (“safe harbor”) in setting executive compensation of nonprofit leaders]
Change in contribution percentage (50% to 60%) same in both bills [refers to the percentage limit on cash donations givers can make to charity]
Of particular interest to educational institutions, both the House and Senate bills include a 1.4% excise tax on investment income of certain private colleges and universities. The Senate bill would preserve the exclusions for qualified tuition reduction and employer-provided educational assistance programs, which would be eliminated under the House version.
The House and Senate are expected to finalize and vote on their respective tax bills as soon as this week. Those who might be concerned about any of these proposed changes impacting churches and ministries should immediately reach out to the House Ways and Means Committee and Senate Finance Committee, which are the most involved in tax-related legislation, as well as their elected Congressional representatives.
ECFA will continue to monitor and report on the ongoing tax reform process through ECFA.org and on Facebook and Twitter.
1Indiana University Lilly Family School of Philanthropy, Tax Policy and Charitable Giving Results (May 2017), https://scholarworks.iupui.edu/bitstream/handle/1805/12599/tax-policy170518.pdf