Congress passed a new stimulus bill before the Christmas weekend. Although President Trump wanted to raise the second stimulus check from $600 per person to $2,000 per person, he still signed the bill into law. Unlike the previous stimulus law — the CARES Act — this new law doesn’t have a catchy name. The law together with 2021 federal government spending is called the Consolidated Appropriations Act, 2021. Some portions of the law have separate names. The part that gives the second stimulus check is called the COVID-related Tax Relief Act of 2020. The part that extended some tax benefits is called the Taxpayer Certainty and Disaster Tax Relief Act of 2020. Because the new laws do some similar things as the CARES Act passed in spring 2020, I’ll refer to them informally as “CARES Act 2.0.”
The original CARES Act introduced a new $300 charity deduction for non-itemizers. It’s only for 2020 and only for those who take the standard deduction. The donation has to be in cash, not in household items, cars, or appreciated securities. It has to be made directly to a charity, not to a donor-advised fund. The maximum deduction is $300 for singles, $300 for married filing jointly, and $150 each for married filing separately. See previous posts CARES Act 2020 Charity Donation Deduction: $300 or $600 for Married? and CARES Act Charity Donation Deduction: Ongoing or Only One Year?
Now “CARES Act 2.0” extended this new charity deduction for non-itemizers to 2021, but with some tweaks for 2021. From the text of the law (bold added by me):
SEC. 212. CERTAIN CHARITABLE CONTRIBUTIONS DEDUCTIBLE BY NON-ITEMIZERS.
(a) In General.–Section 170 is amended by redesignating subsection (p) as subsection (q) and by inserting after subsection (o) the following new subsection:
“(p) Special Rule for Taxpayers Who Do Not Elect to Itemize Deductions.–In the case of any taxable year beginning in 2021, if the individual does not elect to itemize deductions for such taxable year, the deduction under this section shall be equal to the deduction, not in excess of $300 ( $600 in the case of a joint return), which would be determined under this section if the only charitable contributions taken into account in determining such deduction were contributions made in cash during such taxable year (determined without regard to subsections (b)(1)(G)(ii) and (d)(1)) to an organization described in section 170(b)(1)(A) and not–
“(1) to an organization described in section 509(a)(3), or
Consolidated Appropriations Act, 2021, page 1886 in the PDF.
“(2) for the establishment of a new, or maintenance of an existing, donor advised fund (as defined in section 4966(d)(2)).”.
The new deduction is still a one-off, for only 2021, not ongoing. It’s still only for those who take the standard deduction. The donation still has to be in cash, not in household items, cars, or appreciated securities. It still has to be made directly to a charity, not to a donor-advised fund. But, the maximum deduction for married filing jointly is now $600, not $300. The maximum deduction for married filing separately is now $300 each, not $150 each. These tweaks don’t affect 2020.
The 2020 deduction is “above the line” because it was placed in Section 62 of the tax code. It reduces one’s Adjusted Gross Income (AGI). Because many tax benefits and limits are keyed off the AGI, having a [slightly] lower AGI helps. The 2021 deduction is “below the line” because it was placed in a different section of the tax code (Section 170). It doesn’t reduce the AGI, but it also doesn’t compete with the standard deduction. You can take both the standard deduction and this new charity deduction. It’s more “between the lines” — after the AGI but before the standard deduction. Think of it as increasing your standard deduction for one year by the amount you donate up to the cap and subject to those other requirements.
To summarize:
| 2020 deduction | 2021 deduction | |
|---|---|---|
| Only one year | Yes | Yes |
| Only for non-itemizers | Yes | Yes |
| Must be in cash | Yes | Yes |
| Direct to charity | Yes | Yes |
| Max – single | $300 | $300 |
| Max – married filing jointly | $300 | $600 |
| Max – married filing separately | $150 each | $300 each |
| Lower AGI | Yes | No |
Consistency is never a strength in tax laws.
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always_gone says
I’m going to donate $600 on January 2nd. It’ll help a charity and help me nab some low hanging fruit.
Autumn says
Thank you very much for this information. I’ve passed the link to your post on to several friends who, like me, don’t itemize and do donate to charity.
Lee says
Is a credit card payment made directly to a charity considered cash?
Harry Sit says
Yes, it’s considered as cash.
Walt says
I understood that a credit card payment also qualified as long as it was posted by December 31st, 2020. Is that correct?
Harry Sit says
Posted by December 31, 2020 will give you a record for 2020. Other normal requirements still apply. You still need a written acknowledgment from the charity for a contribution of $250 or more. You can make multiple smaller contributions to different charities that add up to the cap.
Regina says
This article from Forbes does not say anything about “below the line” deduction. The 2021 is still “above the line.”
https://www.forbes.com/sites/ashleaebeling/2020/12/22/new-bigger-charitable-tax-break-for-2021-in-year-end-spending-package/?sh=3f7279ed5710
Harry Sit says
If the “line” refers to the AGI, the 2021 deduction is definitely below it. I added the pertinent part of the law to the post. The 2020 deduction is inserted as a new paragraph into the Internal Revenue Code Section 62. Section 62 defines Adjusted Gross Income. The paragraphs in Section 62 adjust the income into the AGI. The 2021 deduction is inserted as a new paragraph into the Internal Revenue Code Section 170 as a special rule for charitable contributions. Because it’s outside Section 62, it doesn’t affect the AGI.
Jen says
Thank you Harry for updating us on this subject.
Torg says
Thanks for that important and welcome update. I do have a question. Why do you think it is a “one-off” in 2021? The source you quoted says, “In the case of any taxable year beginning in 2021, ….” I interpret that as a continuing deduction from year to year.
Harry Sit says
The keyword is “in.” The start of your year has to be in 2021. When you start another year on January 1, 2022, it’s no longer “in” 2021.
Torg says
Thanks!
Seli says
Would a return filed with the qualifying widow(er) tax status count as single (for a $300 deduction) or joint ($600) in 2021? Thanks.
Harry Sit says
The qualifying widow(er) status is eligible for the same amount as single.
Alina says
Thank you so much for this helpful article!
Question for you: our accountant says that we can deduct the $300 for 2020 only if the donations were COVID-related…but the way IRS words it, it sounds like any donation to an eligible charity qualifies. Should we find a new accountant?
Harry Sit says
Your accountant was wrong. The donation didn’t have to be COVID-related. It had to be in cash (including by check or debit/credit card), not physical items or securities. No one is right 100% of the time. It’s your call whether you should find a new accountant over this mistake.
Alina says
Thank you so much, Harry! Of course, no one is right 100% of the time. It was super helpful to get clarification here. Thanks again!
Richard Gayeski says
Do charitable deductions made directly from IRA for RMD requirements count against your $600 tax deduction for 2021?
Harry Sit says
No. You’re already not taxed on the IRA distribution sent to charity. You can’t double-dip and take a deduction again on the same dollars.
Harry Sit says
On the other hand, if you donate another $600 using non-IRA money, you will get the deduction.
Frank Highley says
Where on the 2021 tax forms does our $600 charity donation for non-itemizers go?
Harry Sit says
Form 1040, line 12b.
Frank Highley says
Thank you for your help.