Monday, December 04, 2006

CHARITABLE CONTRIBUTIONS THROUGH PAYROLL DEDUCTIONS

To assist in charitable fundraising, many companies have payroll deduction programs. Under these programs, amounts are withheld by an employer from employee pay, and the funds are then paid over directly to the charity.

The Internal Revenue Code, as modified by the 2006 tax act, requires that a contributor obtain certain written forms of substantiation before a charitable deduction is allowed for the contributor. The IRS has issued rules that provide an acceptable method of substantiation for employee contributors who make their contributions through a payroll deduction plan.

A. Two items of substantiation, if both are obtained, will meet the statutory requirements. The first is a pay stub, Form W-2, or other document furnished by the employer that sets forth the amount withheld during a taxable year by the employer for the purpose of payment to a donee organization. The second item is a pledge card or other document prepared by or at the direction of the donee organization that shows the name of the donee organization.

B. If the amount paid over exceeds $250, the pledge card or other document prepared by the donee organization also must include a statement to the effect that the organization does not provide goods or services in whole or partial consideration for any contributions made to the organization by payroll deduction. This additional information is needed because of the additional substantiation requirements imposed on charitable gifts of $250 or more. Treas. Regs. Section 1.170A-13(f)(11)(ii) provides that the contribution amount withheld from each payment of wages to a taxpayer is treated as a separate contribution for purposes of applying the $250 threshold.

Notice 2006-110, 2006-51 IRB, 12/01/2006
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