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Home : Essentials of Payroll : Charitable Contributions
Charitable ContributionsCharitable ContributionsMany employers encourage their employees to give regular contributions to local or national charities, of which the United Way is the most common example. Employers typically have employees sign a pledge card that authorizes certain amounts to be deducted from their pay. After payrolls are completed, the accounting staff then creates a single lump-sum check representing the contributions of all employees, matches the amounts withheld if this is part of the deal offered to employees, and forwards the payment to the designated charity. Some employees prefer to make a single lump-sum payment to the charity, in which case the company usually forwards its check directly to the charity without generating a deduction through the payroll system.
Some employees can get into the habit of purchasing a large number of items through the company, which can cause two problems. First, the payroll staff may find itself tracking multiple repayment schedules for each employee, which is quite time-consuming. Second, if an employee leaves the company, the amount of the outstanding loans to the company for unreimbursed asset purchases may exceed the person's final paycheck by a significant amount, making it difficult for the company to collect on the outstanding loans. Following two simple rules can prevent these problems. First, do not allow an employee to purchase something from or through the company until the last purchase has been fully paid off. Second, make it company policy that the full amount of such a purchase cannot exceed the amount of an employee's net pay for one month, or perhaps just a single paycheck. These rules reduce the number of purchase reimbursements to track and lowers the risk of loss to the company if an employee quits before paying his or her loans.
Employees can renege on a pledge and ask the payroll department to stop making further deductions from their pay, though this request (as is the case for all deductions) should be made in writing and kept in each employee's personnel or payroll file for future reference. Also, the remittance advice that accompanies each employee's paycheck should itemize both the amount of each deduction and the year-to-date total deduction that has gone to the charity. If there are multiple charities for which deductions are being made, the remittance advice should list each one separately. The employee needs this information when filing his or her income tax return at year-end in order to prove the amount of contributions itemized on the tax return. The Internal Revenue Code (IRC) requires employees to have written substantiation from a charity if the amount of a contribution exceeds $250. However, this requirement is for individual contributions of $250 or more, which is unlikely to be the case for a single payroll deduction (each of which is considered an individual contribution). Furthermore, charities are unlikely to have enough information to issue a written substantiation because they receive a lump-sum payment from the employer and usually have no means for tracking individual contributions. Consequently, employees who make such large contributions should use the year-end remittance advice attached to their paychecks as proof of the year-to-date amount of the contributions made; they should also retain their original pledge cards as proof of the commitment made. Example. David Anderson and Charles Weymouth both make contributions to the United Way. Mr. Anderson has authorized the company to make regular deductions of $80 from each of his weekly pay-checks, which the company will match and forward to the charity. Because each contribution is less than $250, there is no need to obtain a written substantiation from the United Way. Charles Weymouth has authorized the company to make exactly the same-size annual contribution, but he wants it to be taken from his month-end paycheck, which increases the individual deduction to $320 ($80 × 4 weekly paychecks). Because the individual deduction exceeds $250, Mr. Weymouth must obtain a written substantiation of the contribution from the United Way or obtain some similar form of evidence for the IRS. 147
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