Gaza and Charities at War: How Israel Stimulates Charitable Contributions for National Emergencies
What if an employee’s charitable contribution resulted in an immediate reduction in tax withholding on her very next paycheck? That would probably stimulate an immediate increase in donations. Such a program might be efficiently responsive to sudden natural disasters or national emergencies. Israel has an interesting pilot program along those lines. An employee who contributes $100 to a charity in support of the war effort gets a $35 reduction in withholding taxes “straight away.” The IRS typically authorizes special tax concessions during natural disasters, but benefits don’t happen as fast as an immediate reduction in withholding. Last week, the Israeli Tax Authority announced an expansion of the program for charitable donations made in support of Israel’s war effort, referred to as “Swords of Iron.” According to the Jerusalem Post:
The ITA issued a long-expected announcement on November 13, 2024, regarding the Israeli tax credit for donations to Israeli charities if they are approved under Section 46 of the Income Tax Ordinance. Charitable donations to certain approved Israeli charities in the year may qualify for a 35% tax credit within certain limits. In 2024, the minimum donation is NIS 207, and the maximum tax credit is NIS 10,354,816 or 30% of income). For example, if you donate NIS 1,000, you may get a NIS 350 reduction in your Israeli tax bill. Until now, it was necessary to wait until after the year-end and then file an annual Israeli tax return to get a tax refund.
The ITA activated an automatic electronic system on November 13. If the charity is hooked up to the electronic system, when an employee makes a donation, his employer should receive a notice straight away of the amount of tax credit due to the employee. However, the name of the charity won’t be disclosed to the employer for privacy reasons. The employee should then receive the tax credit against tax on his/her salary without having to request it. This began as a pilot project in April 2024, it seems it has gradually been widened to more charities. It remains to be seen how smoothly it all works.
That seems like a really good idea. I suppose it would need to be used judiciously. Since it applies only to donations made for designated purposes, the program might result in decreases in donations for other causes. We don’t want tax policy to distort spending decisions. Not until there is a really good reason. But if special concessions are made for carefully designated disasters or emergencies, and are limited in time, they might be worth the distortion, not to mention the increase in administrative and monitoring costs. Here is the ITA announcement:
To support the war effort arising from the “Swords of Iron” war, the Tax Authorities will grant a tax credit for donations intended to contribute to the war effort, regardless of whether these donations have been made to non-profit organizations or community interest companies, with a different community interest.
Tax Administration Director Shay Aharonovitch stated that “as part of the mobilization of the Tax Administration and all the authorities nationwide towards the war effort, we have chosen to facilitate the task of non-profit organizations collecting dedicated donations for this purpose. From now on, non-profit organizations certified as such, will be able to issue receipts granting credits in accordance with article 46 of the decree and in accordance with the guidelines of the procedure, even if the organization’s current field of activity does not allow such donations to be processed as part of its normal activities”.
According to Article 46 of the Income Tax Ordinance, a person or group of persons who, during a certain tax year, contributed an amount exceeding the minimum established by the Ordinance (190 NIS as of 2022) to a national fund or public organization that has received, for the purpose of this article, the approval of the Tax Authority and the Knesset Finance Committee, will be exempt from the tax due that year at the rate of 35% of the amount of the donation.
According to law, an approved organization can issue a tax credit receipt to the donor only if the donation has been made for the purpose for which the organization was created. The directive published today specifies that non-profit organizations or companies with a valid permit in accordance with article 46 of the Income Tax Ordinance will be able to extend the scope of their activities and collect donations to support the war effort, even if their activity is not defined in their articles of association as being of community interest.
For example – a non-profit organization/community interest company that has been granted the approval according to Article 46, and whose public objectives include education, sport, or aid to the needy, may extend its activities and collect donations for the purpose of purchasing equipment, food or any other item for the benefit of soldiers, war-affected families, etc. This directive will only be valid for donations collected during the period when a state of emergency is imposed. Nevertheless, the tax authorities may update the directive from time to time.
Not a bad idea.
darryll k. jones