Concerns are running high among nonprofit organizations that new federal tax policies could influence the flow of charitable contributions in New Jersey, and those fears may give lawmakers reason to take a new look at long-stalled legislation that would establish a state tax incentive for charitable giving.
Senate Minority Leader Tom Kean Jr. (R-Union) recently reintroduced a bill that would permit New Jersey residents to deduct charitable contributions from their state income taxes, just as the federal government allows, if those donations are made to state-based charities.
Many other states, including neighboring New York and Delaware, provide their residents with such a write-off, which Kean Jr. believes would encourage more donations while also easing pressure on government to provide services.
The renewed effort to establish a state incentive for giving has the support of New Jersey’s nonprofit community, which is now waiting to see if major federal tax changes that were enacted late last year by President Donald Trump will end up cutting into the amount of charitable contributions that residents make. While the new federal tax code still provides a write-off for charitable contributions, the widening of what’s known as the standard deduction means many New Jersey residents will no longer be able to itemize their deductions, and thus receive a tax benefit for their giving.
New focus on taxation
The bill’s revival also comes as lawmakers in New Jersey have been showing new interest this year in issues related to taxation, including the ways state and local tax policies interact. In fact, lawmakers in recent weeks have put forward several proposals to help shield homeowners and small businesses against tax hikes brought on by the new federal rules. Kean Jr. said during an interview yesterday that he’s hoping majority Democrats will also get a “newfound understanding of the importance” of his bill.
“It’s had bipartisan support in the past,” he said.
The federal tax changes that Trump signed into law just before Christmas slightly lowered individual income-tax rates and, among other changes, significantly cut the federal tax burden for corporations and those with large estates. To help pay for those cuts, the tax-code overhaul made several changes to rules related to federal tax exemptions and deductions.
While several analyses of the tax changes indicate many New Jersey residents could see some modest relief as a result of the tax overhaul, including through the widening of the standard deduction, many others may see an increase. That’s due, in part, to a new, $10,000 cap on the deduction for state and local taxes that’s known as SALT. But whether residents here see a tax increase or decrease, the new standard deduction and the cap on the SALT write-off could result in a reduction in the number of New Jersey residents who itemize their deductions, including for donations made to charitable contributions.
‘Strong links’ between giving and tax incentives
According to figures gathered by the Mercer County-based Center for Non-Profits, the stakes may be very high for charitable organizations in the Garden State. During the 2015 tax year, more than 1.5 million New Jersey residents reported charitable contributions on their federal taxes, totaling more than $6 billion in value. Of that amount, nearly $2.5 billion came from those with household incomes under $200,000, meaning they are likely to be impacted by either the larger standard deduction or the cap on the SALT write-off.
Linda Czipo, president and chief executive of the Center for Non-Profits, stressed that New Jersey residents regularly give to charities for many reasons other than a tax write-off, but she also indicated there are strong links between giving and tax incentives.
“We are very, very concerned that with the change in the tax code there will be a significant decrease in charitable giving in New Jersey,” Czipo said.
Unlike the federal government, New Jersey’s income-tax rules generally allow for only a limited number of deductions, including for certain medical expenses and property taxes, though that write-off is also capped at $10,000.
An old proposal
Kean Jr. has been urging his colleagues for roughly a decade to permit residents to deduct their charitable contributions at the state level, and the latest version of his bill would permit the write-off only when the donation is made to a charity that’s based in New Jersey. The legislation defines a charity as a nonprofit group organized under the federal Internal Revenue Service’s 501(c)3 rules, and it would allow for the same limit on deductions that’s provided by the federal government, which is generally 50 percent of adjusted gross income.
While a state tax incentive for charitable giving could provide a big boost to New Jersey’s nonprofit organizations — particularly in light of the threat posed by the federal tax overhaul — Kean Jr. suggested a healthy flow of giving by residents also helps to offset government costs since there’s often an overlap in the services they provide.
“It’s a seamless network across the state of a lot of people who are very passionate and knowledgeable about the needs in their communities,” Kean Jr. said.
It remains to be seen whether his bill will get a serious look from Democratic legislative leaders this year, but Kean Jr. said he’s already had some discussions with members of the majority party who expressed interest in the issue. And his bill was reintroduced just as a bipartisan working group has been organized by Senate President Steve Sweeney (D-Gloucester) to take a broad look at New Jersey’s tax and fiscal policy structure in light of the federal tax changes. Helping to lead that group is Sen. Steve Oroho (R-Sussex), a prior co-sponsor of the charitable-deduction bill.
Czipo, the leader of nonprofit organization, suggested charitable organizations play an important role in New Jersey’s economy, including by employing nearly 10 percent of the state’s private-sector workforce.
“I certainly hope policymakers will continue to keep the charitable community in mind as they’re looking at all of these changes,” she said.