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I currently donate most of my money to charity, and knowing this my company has offered that they could deduce my salary and instead pay that money directly to charity.

I posted a question to the finances board asking rather this would be a net gain to charity, and almost immediately someone suggested that this may constitute tax evasion and be illegal. I wouldn't think my company would screw up by accidentally offering to do something that was illegal.

So would allowing my company to donate money to a charity I choose in lieu of a salary increase be legal for me and my company.

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  • Would the deduction be pre-tax or post-tax? If post-tax, no problem (but also no benefit to you). Sources like finance.zacks.com/… suggest that pre-tax charitable deductions are not allowed. Nov 4, 2021 at 15:17
  • @NateEldredge pretax I believe.
    – dsollen
    Nov 4, 2021 at 15:20
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    And if the donations are entirely in the company's name, and don't appear as your salary at all, that may cause practical problems for you, independent of legality. Suppose you were making $100K, and switch it to $40K plus a $60K donation. In a couple years, you may want to look for a new job. It'll be harder to convince a new employer that you are worth $100K+ in compensation when, on paper, you were only making $40K at your last job. Nov 4, 2021 at 15:22
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    What happens if next year the company decides to stop making this charitable donation? Also what happens if they publicly claim this donation as their own in their PR? Nov 4, 2021 at 16:17
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    There is a vital difference between "we pay you, and by your instructions your salary is deposited at the charity account" and "we do not pay you and we give the same amount to the charity". The later certainly has some legal risks (mainly for the company).
    – SJuan76
    Nov 5, 2021 at 9:41

2 Answers 2

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The company pays you a salary A. They need to withhold some amount B of that to give to the IRS.

Now, if they pay you only C and withhold amount D that is based on that amount, and then make a separate tax-deductible donation E, that means the IRS does get not only an amount D that is smaller than B, but also the company can deduct E (in part) from their own taxes. As a result, that sounds like tax evasion on the face.

However, if they still pay you A, withhold B (the tax on the whole amount), and payout C to you as well as the donation as part of your salary, that could possibly be a legal way - though you might want to consult your tax consultant.

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    this would also be skirting employment taxes the employer bears.
    – Tiger Guy
    Nov 4, 2021 at 17:43
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If your company wants to give money to charity, that is completely legal and not tax evasion.

Let's simplify this. The company offers you a salary increase, which you decline. The company then donates the same amount of money to charity. In accounting terms, these are completely separate transactions. You are directly involved in the former, but are not directly involved in the latter.

At best, you are simply an advisor on the amount and recipient of the company's charitable donation. As long as the company gives the money directly to the charity, you are otherwise not involved.

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    But those are not unrelated transactions - there is an obvious quid pro quo. Nov 4, 2021 at 15:18
  • Obvious? Really? The employee gets nothing. The company gets a charitable deduction. A third party gets most of the benefit. Unless the employee has some kind of stake in the charity, I fail to see the quid pro quo.
    – Mohair
    Nov 4, 2021 at 15:25
  • @Mohair if my desire is to have money go to charity then I have gotten the thing I desire have I not? That seems like a benefit to me, even if my benefit also helps a third party.
    – dsollen
    Nov 4, 2021 at 15:48
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    @dsollen If you want to formally structure it and monitor it monthly, then that certainly changes things. That would form the direct connection between the transactions that everyone involved should desperately want to avoid. The only way it makes sense to do this is for the company to make a lump sum, one-time donation to the charity.
    – Mohair
    Nov 4, 2021 at 16:23
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    @Mohair so what if I 'ask' my company to donate money each month at a set amount, then I call up the charity in question and politely request they inform me if they don't receive donations on any given month, with the understanding i'll be showing up to politely 'request' my company either start donating again or raise my salary back to what it was. Then there isn't a formal structure with my company technically...but that still feels a whole lot like a quid pro quo situation to me.
    – dsollen
    Nov 4, 2021 at 16:30

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