Does Volunteering Deserve a Tax Credit?
February 6, 2012
A year or so ago, syndicated columnist Peter Funt (son of Candid Camera's Alan Funt) proposed that unpaid volunteers in the U.S. should receive a credit on their federal income taxes in exchange for their services.
Funt's idea was picked up by several newspapers and blogs, including Volunteer Hub, but the proposal didn't gain much traction. Nonetheless, it is interesting to think about what kinds of activity the U.S. tax code encourages (e.g., home ownership, charitable contributions) and what kinds of activity it doesn't (e.g., renting, volunteering).
Volunteers are able to deduct many of the costs associated with serving, such as mileage and other travel expenses, copying, supplies, parking and uniforms, but not for the actual time spent.
Advocates for a tax credit have advanced the following ideas:
- Volunteers would be able to claim an amount (equal to 25% of the average hourly rate for all American employees) per hour donated to eligible nonprofit organizations as a deduction on their personal income tax returns
- Credits could be rolled over for a number of years
- Organizations would be required to record the hours and issue receipts to volunteers â€“ much like they already do for donors
Funt argues that implementing his proposal would correct "serious inequities" between paid and unpaid workers in the U.S. and it would provide benefits to the millions of unemployed workers. He estimates the cost to the federal government as less than $1 billion a year â€“ depending on the exact amount of the hourly tax credit.
Dan Kadlec, writing for Time Moneyland (September 26, 2011) advocates for volunteer tax credits for retired people who are serving as mentors, tutors, fundraisers, food distributors, laborers and drivers in their communities. According to the Corporation for National and Community Service, 19 million Americans past the age of 55 contributed an average annual three billion hours of volunteer service from 2008 to 2010. Kadlec thinks that a tax credit for volunteers would be "a good way to capitalize on the goodwill of people with time and talent and a giving spirit and to soften the blow of inevitable entitlement erosion."
There have been two studies in Canada that looked at tax credits for volunteering in Belgium and France to determine the advantages and disadvantages of such an approach. According Volunteer Hub (January 31, 2011) tax credits for volunteers in those countries resulted in a significant reduction in tax revenues, a lack of agreement on the value of a donor's time, and issues with documenting volunteers' time. In addition, a tax credit for volunteer time might actually decrease monetary contributions to nonprofits.
However, a similar incentive already exists at the local level in Central Pennsylvania where residents who are age 60 and over are offered a reduction of up to $500 on their property taxes in exchange for volunteering at local public schools. This effort seems to be successful at encouraging senior citizens to volunteer.
Additionally, according to "How to Become a Volunteer Firefighter" on HowStuffWorks.com, some municipalities give tax credits to volunteer firefighters. These credits usually range from $100 to $500 and require a certain number of hours of volunteering before an individual is eligible. Apparently, there have also been proposals to create a $1,000 tax credit for volunteer firefighters at the federal level, but these ideas have not been adopted.
What do you think? Should the U.S. (or any other country) offer tax incentives for volunteering? Would tax incentives lead to increased volunteering or decreased monetary contributions or neither?
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