Qualified Charitable Distributions from Individual Retirement Accounts

Qualified Charitable Distributions from Individual Retirement Accounts

December 3, 2019
Qualified Charitable Distributions from Individual Retirement
Accounts
Summary
distributions (i.e., withdrawals that meet certain
Congress created incentives for charitable giving through
guidelines) are not included in taxable income (see
qualified charitable distributions (QCDs) from individual
following bullet point). QCDs cannot be made from
retirement accounts (IRAs). The 2017 tax law (P.L. 115-97)
ongoing employer-sponsored IRAs (Simplified
may promote greater use of QCDs because certain
Employee Pensions [SEP-IRAs] and Savings Incentive
taxpayers who do not itemize their tax return are likely to
Match Plan for Employees [SIMPLE-IRAs]) or from
benefit from the QCD.
defined contribution retirement plans (e.g., 401[k] plans
or 403[b] plans);
A provision of the Pension Protection Act of 2006 (P.L.
109-280) established the QCD, which allows individuals
 The portion of any distribution that qualifies as a QCD
aged 70½ or older to contribute directly to a qualified
must come from deductible contributions and earnings
charity from their IRA while excluding the distribution
(i.e., the distribution would have been otherwise
from their taxable income.
included in taxable income). If an IRA includes
deductible and nondeductible contributions, the
This provision was made permanent by the Protecting
distribution first comes from deductible (i.e., taxable)
Americans from Tax Hikes Act of 2015 (Division Q of P.L.
funds, then from any nondeductible IRA contributions.
114-113). Prior to its permanent enactment, several laws
This feature allows for a larger amount of nondeductible
had extended this provision on a one- or two-year basis.
(and, therefore, nontaxable) funds to remain in the IRA
for later distributions by the individual;
Qualified Charitable Distributions
Traditional and Roth IRAs are tax-advantaged accounts that
 QCDs count toward an individual’s RMD (e.g., an
certain individuals or married couples can establish to
individual who is required to take a distribution of
accumulate funds for retirement. Contributions to
$5,000 in a year may elect to make a QCD of $3,000, so
traditional IRAs can be tax deductible, but withdrawals are
that the individual only has to withdraw the remaining
included in taxable income. Roth IRA contributions are not
$2,000 and include it in taxable income);
tax deductible, but withdrawals are generally tax free.
Account owners must begin taking annual withdrawals
 The distribution must be a trustee-to-trustee transfer;
from traditional IRAs—called required minimum
that is, a direct transfer from the IRA to the charity;
distributions (RMDs)—at age 70½. These distributions
must be included in gross income in the year the
 The maximum QCD is $100,000, although a spouse can
distribution occurs, and income taxes must be paid on the
also make a $100,000 QCD if the couple files a joint
distribution’s taxable portion. Roth IRAs do not require
income tax return; and
account withdrawals during an owner’s lifetime because
contributions are generally made on an after-tax basis. For
 The $100,000 maximum QCD does not apply to the
more information on IRAs, see CRS Report RL34397,
overall charitable deduction limit, under which income
Traditional and Roth Individual Retirement Accounts
tax deductions for charitable contributions generally
(IRAs): A Primer.
may not exceed 60% of adjusted gross income (AGI).
Thus, individuals may make charitable contributions in
Section 1201 of the Pension Protection Act of 2006 (P.L.
excess of 60% of AGI using a QCD.
109-280) established QCDs, which allow individuals aged
70½ or older to exclude IRA distributions made directly to
Absent the QCD, some taxpayers who itemize their tax
a qualified charity from gross income (26 U.S.C. §
return could achieve the same reduction in their taxable
408[d][8]). QCD features are as follows:
income by including the IRA distribution in gross income,
donating the distribution to a charity, and taking a tax
 Individuals must be older than 70½ when the QCD is
deduction for the donation. The QCD’s structure allows
made;
taxpayers who do not itemize their tax deductions or whose
charitable contributions exceed 60% of their gross income
 Charities must be eligible to receive tax-deductible
can benefit from the QCD.
charitable distributions;
The 2017 tax law (P.L. 115-97), commonly known as the
 Contributions must be from traditional IRAs. Certain
Tax Cuts and Jobs Act, increased the standard deduction—
circumstances may permit QCDs from Roth IRAs, but
the dollar amount by which taxable income is reduced—for
they are likely uncommon because qualified
many taxpayers. Figure 1 in CRS Report R45145, Overview
https://crsreports.congress.gov

Qualified Charitable Distributions from Individual Retirement Accounts
of the Federal Tax System in 2019 estimates that the
H.R. 5771 (P.L. 113-295) extended the QCD provision
number of taxpayers submitting individual income tax
through December 31, 2014. JCT estimated that this
returns with itemized deductions decreased from 48.7
provision would result in a revenue loss of $384 million for
million in 2017 to 20.4 million in 2018. If taxpayers are less
FY2015 through FY2024.
likely to itemize their return, they may be more likely to use
the QCD provision.
The Protecting Americans from Tax Hikes Act of
2015
Legislative History
The Protecting Americans from Tax Hikes (PATH) Act of
2015 (Division Q of P.L. 114-113) made the QCD
The Pension Protection Act of 2006
provision permanent. The provision was made effective for
The Pension Protection Act of 2006 (PPA; P.L. 109-280)
distributions made in taxable years beginning after
introduced the QCD. The law made QCDs effective for
December 31, 2014. JCT estimated that the QCD provision
taxable years beginning after December 31, 2005, and
would result in a revenue loss of $8.8 billion for FY2015
before January 1, 2008.
through FY2025.
Following PPA, the provision was renewed four times on a
For Further Information
one- or two-year basis as part of tax extenders legislation
Internal Revenue Service, IRS Publication 590-B:
(P.L. 110-343, P.L. 111-312, P.L. 112-240, and P.L. 113-
Distributions from Individual Retirement Arrangements
295). Tax extenders are temporary tax provisions that are
(IRAs) (2018), at https://www.irs.gov/pub/irs-
regularly extended for one or two years and are often
pdf/p590b.pdf.
passed near the end of the tax year.
Joint Committee on Taxation, Estimated Budget Effects Of
Congress can use tax extenders as an opportunity to
The “Tax Relief, Unemployment Insurance
evaluate effectiveness, to address temporary circumstances,
Reauthorization, And Job Creation Act Of 2010,”
or for budgetary purposes. For more information on tax
Scheduled For Consideration By The United States Senate,
extenders, see CRS Report R45347, Tax Provisions That
Expired in 2017 (“Tax Extenders”)
JCX-54-10, December 10, 2010,
.
https://www.jct.gov/publications.html?func=startdown&id=
Extension Legislation Enacted in the 111th Through
3715.
113th Congresses
PPA’s
Joint Committee on Taxation, General Explanation of Tax
provision for QCDs expired on December 31, 2007.
Legislation Enacted in 2015, JCS-1-16, March 14, 2016,
P.L. 110-343 extended this provision until December 31,
https://www.jct.gov/publications.html?func=startdown&id=
2009. The Joint Committee on Taxation (JCT) estimated
4874.
that this provision would result in a revenue loss of $795
million for FY2009 through FY2018. JCT cost estimates
Joint Committee on Taxation, Estimated Budget Effects Of
are calculated for 10-year periods, regardless of provision
The Tax Provisions Contained In An Amendment In The
length.
Nature Of A Substitute To H.R. 1424, Scheduled For
Consideration On The Senate Floor On October 1, 2008,
H.R. 4853, the Tax Relief, Unemployment Insurance
JCX-78-08, October 1, 2008,
Reauthorization, and Job Creation Act of 2010 (P.L. 111-
https://www.jct.gov/publications.html?func=startdown&id=
312), extended the QCD provision until December 31,
1260.
2011. H.R. 4853 became the legislative vehicle to extend
the income tax rates that were scheduled to expire on
Joint Committee on Taxation, Estimated Revenue Effects Of
December 31, 2010. The provision to extend the QCD
H.R. 5771, The “Tax Increase Prevention Act Of 2014,”
through December 31, 2011, was included as Section 725
Scheduled For Consideration By The House Of
of the Senate amendment to H.R. 4853 (S.Amdt. 4753),
Representatives On December 3, 2014, JCX-107-14R,
which passed the Senate on December 15, 2010. The House
December 3, 2014, https://www.jct.gov/publications.html?
passed H.R. 4853, as amended by the Senate, on December
func=startdown&id=4677.
16, 2010. President Barack Obama signed H.R. 4853 into
law on December 17, 2010 (P.L. 111-312). JCT estimated
Joint Committee on Taxation, Estimated Revenue Effects Of
that the QCD provision would result in a revenue loss of
The Revenue Provisions Contained In An Amendment In
$979 million for FY2011 through FY2020.
The Nature Of A Substitute To H.R. 8, The “American
Taxpayer Relief Act Of 2012, as Passed by the Senate on
H.R. 8, the American Taxpayer Relief Act of 2012 (P.L.
January 1, 2013”, January 1, 2013, JCX-1-13.
112-240), extended the QCD provision until December 31,
https://www.jct.gov/publications.html?func=startdown&id=
2013. H.R. 8 was the legislation used to avert scheduled
4497.
income tax rate increases and the spending reductions
required by the sequestration process. JCT estimated that
the QCD provision would result in a revenue loss of $1.3
Elizabeth A. Myers, Analyst in Income Security
billion for FY2013 through FY2022.
IF11377

https://crsreports.congress.gov

Qualified Charitable Distributions from Individual Retirement Accounts

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.

https://crsreports.congress.gov | IF11377 · VERSION 1 · NEW