A common question among donors and nonprofit organizations is whether credit card fees impact the tax deductibility of a donor’s contribution. Should the donor be able to deduct the full donation amount, or should credit card processing fees be considered an expense that reduces the deductible amount?
The Tax Deduction Rules
For donors who itemize deductions rather than taking the standard deduction, the Internal Revenue Service (IRS) allows them to deduct the full amount they contribute to a qualified charitable organization. This means that if a donor gives $100 to a charity, the full $100 is deductible, even if the nonprofit incurs fees to process the donation. The same principle applies regardless of other administrative expenses the charity incurs, such as:
Credit card processing fees
Online transaction fees
Costs associated with maintaining the nonprofit’s website or donation platform
Costs of donor acknowledgment gifts (e.g., small promotional items)
Compensation for fundraising staff
Bookkeeping and accounting expenses
These expenses are considered part of the charity’s operational costs, and they do not affect the donor’s tax deduction.
What About Covering Processing Fees?
Some online donation platforms give donors the option to cover the credit card processing fees on behalf of the charity. If a donor opts to do this, the additional amount paid to cover the fees is also deductible. For example:
A donor chooses to donate $100.
The platform allows the donor to pay an additional $3 to cover transaction fees.
The donor’s total payment is $103.
The donor is entitled to deduct the full $103 as a charitable contribution.
IRS Guidance on Reporting Contributions
The IRS requires charities to report the gross amount received as contributions on their Form 990 (annual tax return). Any expenses, including credit card processing fees, are reported separately on the statement of functional expenses. This ensures that donors receive proper acknowledgment of their full contribution while maintaining financial transparency for the nonprofit.
Key Takeaways
Donors can deduct the full amount they contribute to a qualified charity, regardless of processing fees incurred by the nonprofit.
Credit card fees and other administrative costs are considered expenses of the charity, not reductions in the donor’s deductible amount.
If a donor opts to cover processing fees, the additional amount is also deductible.
Charities must report contributions at their gross amount and account for expenses separately on their tax filings.
By understanding these principles, both donors and nonprofit organizations can ensure compliance with IRS regulations while maximizing charitable giving.