January 22, 2020
Nonprofits not Eligible for Full Provisions of American Jobs Act

September 22, 2011 — While nonprofits would be able to reduce the payroll taxes they pay if President Obama’s American Jobs Act becomes law, certain benefits available to for-profits under the proposed bill would not be available to nonprofits, raising concerns among some in the sector.

According to Independent Sector, a national network for charities, foundations, and corporate giving programs, nonprofits would not be able to take advantage of:
  • The extension of 100% bonus depreciation for certain business assets, which is meant to encourage additional capital investment by extending the ability of businesses to deduct the full cost of qualified property.

  • A temporary increase in the size of contract surety bonds that the Small Business Administration can guarantee through the end of 2012.
Independent Sector was concerned that “the President’s proposal in many instances does not treat nonprofit employers equitably. The tax incentives made available to nonprofits to hire veterans and unemployed individuals are only two-thirds of the amount available to for-profit employers.”

According to the Chronicle of Philanthropy:
  • Up $2,600 for hiring workers who have been job-hunting for more than six months (compared with $4,000 available to businesses).

  • Up to $1,560 for hiring veterans who have been unemployed at least four weeks (compared with $2,400); up to $3,640 for veterans who have been without work for at least six months (compared with $5,600); and up to $6,240 for veterans with service-connected disabilities who have been jobless for at least six months (compared with $9,600).
The White House said adjustments were made for nonprofits to reflect the difference in tax liabilities between the two types of employers since nonprofits do not pay income taxes or get deductions for the salaries of employees who would be generating the tax credits.

Businesses, which are subject to the official corporate income-tax rate of 35%, would get the credit on income taxes. Nonprofits would apply the credit to payroll taxes.

Nonprofits, like their for-profit counterparts, would be able to take advantage of the bill’s proposed cut in half of the payroll tax for employers to 3.1% on the first $5 million in wages.

Capping the Charitable Deduction

Independent Sector urged Congress and the President to pay for this jobs package without capping the charitable deduction.

It said that the proposed 28% cap could cost charities as much as $7 billion a year in contributions.

“Without this income, nonprofit organizations will struggle to meet the growing demand for services caused by the sluggish economy and decreased government funding. Moreover, they will find it hard to fund new jobs. The proposed cap on the charitable deduction is fundamentally at odds with the purpose of the Jobs Act,” Independent Sector noted.

A number of studies have concluded, however, that reducing or even eliminating the charitable deduction would not have a material effect on giving to nonprofits.

Two years ago, the Center on Philanthropy at Indiana University studied the impact of reducing the deductibility of charitable donations from 35% to 28% for households earning more than $250,000 per year, as the Obama administration proposed, and said the changes would have resulted in a reduction of total itemized giving by the highest income households of 4.8%.

A Bank of America study released in 2005 of high net-worth individuals said that 53% said they would not change their charitable giving, or would even increase it, if the deduction for charitable gifts went to zero.

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