Will the New $2,000 Tax Break Bring Back Everyday Donors?

Regular people have fallen away from organized giving. Can a new tax deduction bring them back?

The new tax break, which takes effect in 2026, will provide people who don’t itemize their taxes a charitable deduction worth up to $1,000 for singles and $2,000 for couples. Part of the recently passed tax legislation, the new deduction is the result of years of lobbying by nonprofit advocates who worry that the collapse in giving by everyday donors could lead to long-term problems for the nonprofit world.

“It’s no silver bullet, but it’s one piece of the shift toward democratizing giving,” says Shannon McCracken, president of the Nonprofit Alliance, an advocacy group. “Finally, our government is saying that all giving levels are valuable — not just those gifts coming from higher-income people.”

Fewer than half of Americans give to organized charities, down from nearly two-thirds as recently as 2008. The decline worsened after the sharp increase in the standard deduction in 2017. That change led to a drop in the number of people who itemize, now under 10 percent — meaning that most people receive no tax benefit from their giving. A study by three academic researchers found that the loss of giving incentives accounted for a $20 billion drop in giving in 2018, the first year the change was in effect.

Making matters worse, the change may have prompted a shift among lower- and middle-income families toward more informal ways of giving, experts say. When the pandemic struck, the tax code gave little incentive to favor the organized charity over other forms of generosity, such as helping a cash-strapped neighbor in a GoFundMe campaign. (Very small charitable deductions were available for non-itemizers during a brief window, in 2020 and 2021.)

“Unfortunately, your local food bank or domestic-abuse shelter can’t survive on crowdfunding,” says Brian Walsh, executive director of Faith and Giving, a coalition of faith-based organizations that lobbied for this year’s non-itemizer deduction. “It has its place, but it’s not a sustainable path for taking care of the needy.”

What also got lost, argues Jason Zwang, a fundraising consultant in Atlanta, was the structure around giving to charities. With no tax incentive at stake, many couples and families that gathered annually over the holidays to discuss year-end giving let that tradition trail off.

“Once the itemization went away, there was just no need for many households to structure their giving or have those conversations,” Zwang says.

The new non-itemizer deduction gives charities a hook to try to bring lapsed donors back, he says.

“I think it’s important to re-engage those audiences and say, ‘Hey, we’re back. We want to let you know about this legislation — it’s an opportunity for both of us,’” Zwang says.

An analysis by Capital Policy Analytics, made before the bill passed, estimated that a smaller deduction — just $500 for individuals and $1,000 for couples — would have increased charitable donations by $11 billion per year. So the incentive that passed, with limits that are twice that high, would stimulate giving even more, perhaps to the tune of $20 billion per year.

“We can certainly assume that we’re talking billions of dollars a year in additional giving that’s coming into the sector,” McCracken says.

The non-itemizer deduction does come with some conditions — the gifts must be made in cash, and contributions to donor-advised funds aren’t eligible.

The new incentive will likely benefit small and midsize charities the most, especially those for whom $2,000 is a significant gift.

“It means that more organizations and more causes will be supported, including those that are working very much at the community level — smaller organizations that aren’t on the radar of the larger contributors,” McCracken says.

May Not Move the Needle

Others foresee less of an impact. Tax incentives are most effective at driving behavior among wealthier donors — in part because more money is involved, and also because they’re taxed at higher rates, so their savings for every donated dollar is higher.

For a non-itemizing, middle-income couple in the 24 percent tax bracket — with taxable income between $103,351 and $197,300 — giving $2,000 to charity in 2026 would result in a tax break of $480.

Woodrow Rosenbaum, chief data officer at GivingTuesday, says that kind of incentive isn’t necessarily going to move the needle. Rosenbaum doubts many people will suddenly decide to become charitable simply because their cost of giving has been reduced by about a fourth.

“At the everyday-giving level, those givers are less incentivized by tax deductions,” he says.

Where the legislation might help, he thinks, is in motivating charities to re-engage with donors. That’s a message Rosenbaum and Giving Tuesday have been hammering for years — that charities are leaving money on the table by not soliciting people who are ready to give.

“Even if this has minimal motivating power on the taxpayer, if it wakes up fundraisers to the need and opportunity to engage more broadly, that’s fantastic,” Rosenbaum says.

Some experts say the real payoff if millions more Americans return to giving will be recognized over decades — not next year. Bob Guittard, a fundraising consultant in Austin, Tex., says small-dollar donors often migrate up the fundraising pyramid — making big gifts late in life or leaving generous bequests.

“You can’t retain donors unless you acquire donors,” Guittard says. “If charities are acquiring new donors because of this tax law — then cultivating them and upgrading them over time — that will lead to sustainable and scalable growth.”

Part of the reason for the drop-off among everyday donors, he says, is an emphasis at the highest levels — among CEOs and chief development officers — on major gifts to the exclusion of almost everything else.

“This encourages them to not just focus on that short-term gain — the big gift to the comprehensive campaign — but also on what is going to help them grow in the most sustainable way over the next 10 to 20 years,” Guittard says.

Time to Prepare

How should charities go about promoting the new incentive? That’s tricky for a couple of reasons. First, the incentives haven’t gotten better for everybody; in fact, the new tax law makes it harder on the wealthier donors who itemize. They will now need to exceed a 0.5 percent floor on their charitable giving before they receive any tax benefit. The floor helped to pay for the non-itemizer incentive in the tax legislation and win support for the combined measure in Congress.

Charities don’t need to get granular with donors on the details, McCracken says. “There’s an opportunity for fundraisers to promote all of this as an incentive to increase giving.”

Timing is also a challenge, with the changes not taking place until 2026. Guittard says the delay gives charities time to develop a budget and strategy for investing in donor cultivation or new messaging about the changes.

“Now could be a great time — before the new law is in place — to start mapping out strategic investments for next year.”