In the US, the main tax benefits of employer donation matching over giving employees more money that they can donate are:
If you want to deduct donations, you can’t take the standard deduction ($13k in 2022 for an individual). If you don’t have any other deductions that you would be itemizing, this means the first $13k you donate is effectively taxed as if you had kept it.
At the federal level, only income tax allows deducting donations. Payroll taxes are pretty much just proportional to pay (~15%). Half of payroll taxes are paid by the employer, which makes this effect twice what it appears when looking at your paystub.
At the state level, most don’t allow deducting donations, and the states that do typically have very low caps.
For example, last year my family paid $89k in federal income tax, $39k in state income tax (MA), and $35k in payroll taxes (the employers paid another $35k), for a total of $197k in taxes on $780k of income ($815k cost to employer counting payroll taxes) and $400k of donations. If our employers had instead let us direct that $400k and paid us $380k only, we would have paid approximately $75k in federal income tax, $20k in state income tax, and $17k in payroll taxes (with the employers paying another $17k). This saves $65k (8% of total pay, 17% of post-donation pay, 35% of post-donation post-tax pay) which could be donated.
How would this have tax benefits? Also sounds like it creates additional admin work for orgs.
In the US, the main tax benefits of employer donation matching over giving employees more money that they can donate are:
If you want to deduct donations, you can’t take the standard deduction ($13k in 2022 for an individual). If you don’t have any other deductions that you would be itemizing, this means the first $13k you donate is effectively taxed as if you had kept it.
At the federal level, only income tax allows deducting donations. Payroll taxes are pretty much just proportional to pay (~15%). Half of payroll taxes are paid by the employer, which makes this effect twice what it appears when looking at your paystub.
At the state level, most don’t allow deducting donations, and the states that do typically have very low caps.
For example, last year my family paid $89k in federal income tax, $39k in state income tax (MA), and $35k in payroll taxes (the employers paid another $35k), for a total of $197k in taxes on $780k of income ($815k cost to employer counting payroll taxes) and $400k of donations. If our employers had instead let us direct that $400k and paid us $380k only, we would have paid approximately $75k in federal income tax, $20k in state income tax, and $17k in payroll taxes (with the employers paying another $17k). This saves $65k (8% of total pay, 17% of post-donation pay, 35% of post-donation post-tax pay) which could be donated.