New US Tax Law to Cut Charitable Giving by $5.7 Billion

Tax Changes Cut Over $10 Billion From High-End Donations

A new U.S. tax law is set to remove more than $10 billion in annual charitable contributions by targeting deductions for the wealthiest households and corporations. The legislation introduces two key changes for individuals who itemize deductions. First, it limits the value of the deduction to 35% for taxpayers in the top 37% tax bracket, a change expected to reduce giving by approximately $6.1 billion. Taxpayers with an adjusted gross income of $500,000 provided 57% of itemized charitable giving in 2022, concentrating the impact on a critical donor base. Second, a new 0.5% floor on itemized deductions, meaning the first 0.5% of income donated is not deductible, is projected to cut another $2.43 billion.

Corporate philanthropy also faces new constraints. The law establishes a 1% floor on pre-tax profits for charitable deductions, meaning companies giving less than this threshold will lose the tax incentive. This policy is estimated to decrease annual corporate giving by $1.55 billion. This new drop in giving comes on top of a $20 billion reduction that resulted from the earlier Tax Cuts and Jobs Act (TCJA).

Universal Deduction Adds $4.39 Billion From New Donors

To offset these reductions, the law creates a universal charitable deduction designed to encourage giving from a broader population. This provision allows the 87% of U.S. households that take the standard deduction to write off donations up to $1,000 for single filers and $2,000 for married couples. The policy is projected to boost giving by $4.39 billion and attract between six million and 8.7 million new donors.

However, the analysis indicates a structural shift toward smaller gifts. Of the expected $4.39 billion increase, approximately $1.3 billion will come from these new donors, with the remaining $3 billion representing additional giving from existing donors who can now claim the deduction. This dynamic broadens philanthropic participation but replaces the high-value contributions lost from top-tier donors with smaller, more numerous gifts.

Non-Profits Face Funding Shift

While the net $5.69 billion reduction represents less than 1% of the $592.5 billion given to U.S. non-profits in 2024, the impact will be uneven. Organizations that depend on major gifts from high-net-worth individuals and corporate partners are most exposed to funding shortfalls. The total effect of the law could range from a $2.5 billion to a $12 billion annual decline in giving.

Despite the new tax disincentives, experts believe the core motivations of wealthy philanthropists remain intact, though their methods may change. Changes in tax policy can affect the timing and financial vehicles used for donations, but the fundamental drive to give is often separate from tax considerations.

The reason for giving is so much bigger and deeper than taxes alone.

— Greg Hagin, Managing Partner at CCS Fundraising.

For non-profits, the new landscape requires a strategic pivot. Fundraisers must now focus on communicating the benefits of the universal deduction to attract a wider base of small-dollar donors while continuing to appeal to the non-financial motivations of their largest supporters.