New law makes charitable contribution tax credits more widely available

Changes to Vermont’s tax code will now benefit all Vermont taxpayers making charitable contributions in 2018.

The Vermont Department of Taxes and Gov. Phil Scott worked with the Legislature this year to pass legislation that went into effect on July 2. The new law reduces most Vermont marginal income tax rates by 0.2 percent, increases the earned income tax credit, and creates a 5 percent charitable contribution tax credit for all filers.

The latter is in response to changes in federal tax law. Before federal changes last December, the Vermont Tax Department estimated that approximately one-third of taxpayers enjoyed tax benefits associated with charitable giving.

Changes in federal law, however, have increased the standard deduction, which will result in fewer taxpayers being able to benefit from itemizing tax deductions. Tax officials predicted that as a result of the federal changes, fewer than 10 percent of Vermonters would have been able to receive a tax benefit for charitable contributions.

Act 11 passed by the Legislature and signed by the governor provides for a nonrefundable charitable contribution credit against the Vermont taxpayer’s tax liability. This credit is 5 percent of the first $20,000 in eligible charitable contributions made during the taxable year regardless of whether the taxpayer itemizes on their federal tax return.

Taxpayers are advised to keep documentation of charitable contributions made in 2018, including receipts, as the law and credit are retroactive to Jan. 1. The Vermont Department of Taxes recommends that taxpayers consult their tax advisers and IRS guidelines for information about what charitable contributions are allowed.

More information is online at tax.vermont.gov under 2018 Legislative Highlights.

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