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The charitable tax deduction used by 173,000 Minnesotans who don’t itemize their income tax returns would end under a House proposal before a legislative conference committee.
It would be replaced by a charitable tax credit. That credit would not allow the donation to be deducted — dollar for dollar — from the filer’s taxable income.
House Tax Committee Chair Ann Lenczewski, DFL-St. Paul, has argued that it is a matter of fairness, that charitable incentives should be the same for all taxpayers. About 80 percent of the state’s taxpayers are itemizers, and they receive a tax credit — not a deduction.
But a coalition of nonprofit and philanthropy leaders say the measure would discourage some folks from donating to charities.
“Most donors have come to understand that dollar one is deductible from their taxable income,” said Jon Pratt, executive director of the Minnesota Council on Nonprofits. “This change, we believe, will reduce their incentive and reduce their charitable contributions.”
Minnesotans donated $98 million last year through the non-itemizer’s deductions, said Pratt. The deduction kicks in after the first $500 in donations.
The House tax bill would repeal the charitable contribution deductions for both people who itemize and people who don’t. It would replace them with a new credit that provides the same tax benefit to all: 8 percent of contributions that exceed 2 percent of adjusted gross income or $400 ($800 for married joint filers), whichever is more.
The changes are expected to save the state $40 million per biennium.
The council is among dozens of nonprofits and philanthropy groups urging legislators to drop the measure. They include the Greater Twin Cities United Way, the Minnesota Council on Foundations and the Jewish Community Relations Council of Minnesota and the Dakotas.
The provision is not part of the Senate’s tax bill. The House and Senate bills must be reconciled in Omnibus Tax Bill conference committee.