As companies continue to recognize the importance and benefits of corporate social responsibility, more and more corporations continue to implement employee giving programs. These programs give employees a voice in where their company’s philanthropic dollars end up.
But have you ever wondered about the tax implications of employee giving programs such as matching gift programs where companies donate money on behalf of their employees?
An Overview of Matching Gifts:
A matching donation is a donation from a corporation that matches the monetary donation of an employee to a charitable, nonprofit organization. These programs are designed to support the organizations which employees are passionate about. An employee submits a matching gift request to their employer after making a donation. The employer will then make a similar donation to the nonprofit organization.
For instance, Gap Corporation will match employee donations dollar for dollar. This means if an employee were to give $1,000 to an eligible nonprofit, Gap would also donate $1,000 to the same nonprofit.
Some companies simply donate money to charitable organizations chosen by the board of directors or officers in the corporate social responsibility offices. According to Target’s Corporate Social Responsibility report, the company donated $100 million to educational causes on an annual basis in recent years. The organizations receiving these were not chosen by individual employees who had supported the causes with their own contributions but rather a mix of broader corporate support and contributing to organizations their customers suggested.
In contrast, Microsoft has donated over one billion dollars through matching gifts to nonprofits chosen by employees who applied to have their personal contributions matched by the company.
The IRS deems donations to eligible 501(c)3 nonprofit organizations as tax deductible. This rule is for individuals and corporations. A corporation can only take deductions for charitable giving for up to 10 percent of its yearly taxable income.
Since a matching gift is a donation companies can deduct their matching donations from their reported income, decreasing reported income means a company will not have to pay taxes on the donated money.
Tax Benefits for Companies:
The tax benefit of an employee matching gift program is a tax deduction on the company’s earned annual income. If a corporation were to simply donate money to a nonprofit organization it would still receive the same tax benefits. The corporation does not receive a greater tax benefit from employee matching gifts versus corporate philanthropy work in general but the company does see the added employee engagement benefits from supporting the organizations which employees are passionate about.
Tax Implication for Donors:
There is sometimes confusion among employees regarding their ability to take a tax deduction on a matching gift. But the short answer is that each party (employees & the company) can only take deductions on the actual charitable contributions that they made.
So that means if an employee donated $500 to an organization and it was matched at a 1:1 ratio by his or her employer, then the employee could deduct $500 and the company could deduct $500.