A payroll deduction donation receipt is a written record showing that the employee of a third-party entity donated funds directly from their paycheck to the receiving organization. This receipt must include specific information about the charitable organization, the donation, and the employee.
The IRS considers payroll deduction donations to be cash contributions, so they are subject to specific reporting requirements to qualify for tax deductions. This receipt can’t stand alone without additional documentation from the donor’s employer.
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Receipt Requirements
Charitable organizations must provide a written “pledge card” or similar document to donors pledging portions of their regular payroll as donations. At a minimum, this pledge card has to include the following information:
- Donation amount;
- Organization’s name;
- A statement clarifying if the organization and donor exchanged goods or services for the pledge; and
- If so, an estimate of the value of the exchanged goods or services, or
- A statement that the services provided are intangible religious benefits.
To claim a tax deduction, donors must submit their pledge card along with pay stubs, a W-2, or another document produced by their employer that verifies the contribution date(s) and amount(s).
$250 Threshold
Each paycheck deduction is considered a single contribution for reporting purposes. When an individual payroll deduction is $250 or more, it requires a contemporaneous written acknowledgment for its receipt. This means that, along with their employer-provided verification, they must submit a formal written acknowledgment from the organization that meets all of the above requirements.
The charitable organization must also deliver the acknowledgment by the date the donor files their tax return or the filing due date (including extensions), whichever comes first. If the organization fails to do this, the donation will be ineligible for a deduction.
Charity Benefits
The predictability of payroll deductions helps charitable organizations plan budgets and operations in advance. This flexibility creates several benefits for the charities that receive them:
- A healthy volume of payroll deduction donations can positively affect an organization’s credibility, which ultimately helps it secure other types of funding down the road as a low-risk candidate.
- Because employees pledge to donate an exact amount per pay period, the organization can anticipate how much funding it will receive from that donor and when it will arrive.
- Payroll donation agreements build positive donor relationships with corporations and small businesses.
- The charitable organization avoids fees that come with other types of cash donations (such as credit card fees).
Donor Benefits
Payroll deduction donations provide two particular benefits for donors over other cash donations. First, a recurring payroll deduction pledge allows donors to submit their contributions in small amounts instead of one or a few large sums over a year. Second, these donations are tax-deductible because the funds are withdrawn from the employee’s after-tax earnings.