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 This month approximately 130
million people will begin receiving tax rebates totaling over $100 billion from the IRS as part of the economic
stimulus package that was signed into law this February. The rebates will continue to be received throughout
the spring and summer.
While most of these funds will be used for other purposes, some of the tax rebates will reportedly be
donated to charity. According to the Association of Fundraising Professionals’
report on a recent Associated Press poll, some 4% of the people surveyed intend to use their tax
rebate to support a charitable cause. A separate CNN/Opinion Research Corporation poll found that 3% said
they will donate the extra money to charity.
This could translate into millions of contributions and several billions of dollars worth of extra gifts this year.
Using the 4% figure, if 5.2 million rebate recipients gave all or a portion to charity, the following gifts
would result:
These gifts might even help offset downward pressure on giving that sometimes accompanies a
recession or economic downturn.
The additional rebate-associated giving is the latest example of how tax policy can impact philanthropy.
In 2005, the removal of AGI limitations for charitable gifts included in the Katrina Emergency Tax Relief
Act spurred an additional $11 billion in charitable giving. Then, the 2006 Pension Protection Act included a
provision for persons over 70˝ to make direct transfers from IRAs to charity. Over $135 million in such
transfers have been reported to the
National Committee on Planned Giving thus far, and it’s possible that additional unreported IRA
transfers could push the total into the $500 million to $1 billion range. Note gifts from 4% of rebate recipients
of just $300 on average would result in more gifts than the IRA provisions.
Who will benefit?
 While every
charity is a potential recipient of tax rebate gifts, those who communicate the concept to potential
contributors are likely to be the biggest beneficiaries. Who are the best prospects for tax rebate
gifts? The answer may surprise you.
Instead of your wealthiest donors, or the mass of lower-dollar donors, the best prospects will likely
be found among your mid-level donors. Most of the top-level donors will be ineligible for tax rebates
because of income limits which phase out the benefit for singles with incomes over $75,000 or couples
who earn over $150,000. Many lower-dollar donors may use this tax rebate windfall to pay debts
or to purchase necessary goods or services. Some of these donors will give all or part of the tax rebate to
charity, but most will not.
Remember, people tend to give from discretionary income and assets. Thus, the best
prospects may be found among those people in the middle of your donor base for whom the rebate represents
increased discretionary income and who do not need the funds to pay bills, go out to dinner, or to buy
more “stuff.” We believe that the comfortable, middle-class, better-than-average donor will be the
best prospect for these gifts.
They will be most likely to appreciate additional funds from which to make charitable gifts,
with the knowledge that funds given to charity will be expended on salaries and programs,
thereby providing a direct economic impact.
Those in the middle group are in the best position to consider additional charitable gifts this year. Many
could make gifts in the $100 to $1,000 range using funds from their rebate. In some cases, those
who immediately save the money may, when prompted, reconsider and decide to give all or a portion
of their rebate. Almost every charitable organization has hundreds, or even thousands,
of donors who fall into this mid-range. We anticipate that the vast majority of these extra
rebate gifts will come from donors who have in the past made gifts of between $100 and $5,000.
Tax incentives for rebate gifts?
When you communicate with those donors in the mid-range group about the charitable gift potential
of the tax rebate, be sure to explain the potential double benefit they can expect from such gifts.
Example: If Sue decides to save her $1,000 rebate, she might earn 2% if she puts that
money into her savings account. However, if Sue decides to make a charitable gift of
$1,000 of her tax rebate, she will enjoy up to a 25% return on her money. How? Sue does not have to
report the rebate as taxable income, but she will be allowed to deduct $1,000 for her charitable gift on
her 2008 tax return. In her 25% tax bracket, this results in a $250 tax savings. She thus enjoys $1,250 in
benefit from her rebate—$1,000 donated to charity plus the $250 she enjoys in tax savings as a result
of her gifts. State income tax savings may further increase her benefit.
Reaching the right group
To receive maximum benefit from these gifts, charities should plan now to communicate the
opportunity to prospects this spring and summer. Ideally, use a multi-layered marketing effort that
provides overlapping messages via the appropriate mixture of special targeted mailings, inserts in existing
appeals, ads and articles, postcards, e-mail, and web content. (See www.sharpenet.com/taxrebatesandgiving
or page 7 for more information.)
There is likely to be significant competition for these funds, so it is essential for nonprofits to get this
message out often and repeatedly in order to secure a maximum slice of the tax rebate pie.
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