Check Out Donations Are NOT a Scam
This is one of those grocery formalities that many shoppers ignore: when you pay, you are sometimes asked if you would like to donate to charity before using the card.
Nothing mysterious about this, but it looks like a lot of people don’t understand how the donation system at the grocery store checkout works. Case in point: Last week, a misleading tweet went viral claiming that participating grocery stores had already given donations to nonprofit partners for tax write-offs and were simply collecting customer money as refunds. Donations, according to the tweet, are just a ploy to speculate under the guise of charity.
While allegations of corporate malfeasance and general greed will always generate outrage online, this tweet has taken off across the social media stratosphere despite the lack of any context or evidence. This is also completely wrong. Let’s be clear on how these donations really work from a tax perspective.
No, the grocery store will not refund your money.
There are two types of grocery store donations that relate to point-of-sale transactions. The first, which requires a joint venture between a grocery store and a non-profit or charitable organization, occurs when the market donates a percentage of its sales. C0 businesses are generally regulated by state governments . Failure to comply with state joint venture rules “can lead to fines and, in some states, even criminal penalties,” the Council of Nonprofits notes.
These joint ventures comprise a certain percentage of the customer’s sales and can be organized in any number of ways. Renu Zaretski explained to the Center for Tax Policy last year how her particular grocery store deals:
For example, my local grocery chain offers “community rewards” when I scan a customer card at the checkout. A small portion of the proceeds from my purchases goes to my chosen community organization (my son’s high school ).
Traditionally, grocery stores, like any other entity in America, can deduct up to 10 percent of their taxable income in charitable gifts a year, a number that was increased last year when Congress passed the CARES Act. In reality, grocery stores use a small portion of their own sales as charitable donations. Unlike last week’s viral tweet, the donation is made at the point of sale – they don’t use the system to reimburse a previous donation.
What Happens When You Donate
Then there is another kind of donation from the supermarket, in which the customer rounds up their purchase by a couple of dollars (or more if they wish) and the extra money is donated to a charity the store has chosen. But again, there is no sly, unspoken trick here.
The Tax Policy Center explains how it works:
The store serves only as a collection agent for your gift. Assuming the company is in compliance with the law, it will not include your donation as part of its business or income, nor will it claim the charitable gift as an expense.
In other words, your gift does not affect the store’s income tax. Keep in mind that the store is choosing a charitable foundation, so make sure you can support it . As a customer, the donation will be listed on the receipt and you can claim it as a charitable deduction when filing your tax return. But you probably won’t.
If you receive a donation receipt (and if the donation goes to a 501 (c) (3) registered nonprofit), you can deduct it from your personal tax income. In tax year 2020, you can deduct up to $ 300 in charitable donations without having to remit.
Needless to say, there are certain PR tactics with markets encouraging customers to donate to good causes. But grocery stores don’t use manipulative tactics – and you yourself can benefit from it if you stay smart when paying taxes. And, as always, don’t seek out personal finance advice on social media.