Donor-advised funds and charitable remainder trusts for W-2 earners in 2026

By the Tax Field Guide editorial team. Published 2026-10-26. Facts checked 2026-10-26. Related strategies: Donor-Advised Funds, Charitable Remainder Trusts, Qualified Charitable Distributions.

Education only; not tax, legal or investment advice. Tax rules change, and how they apply depends on your facts. No outcome is guaranteed.

For someone whose income is mostly wages, charitable giving is one of the few levers that can reduce income tax in a given year. Two common vehicles are the donor-advised fund (DAF) and the charitable remainder trust (CRT). Both are legitimate when used as the law intends. Both have rules that changed for 2026.

What changed for 2026

Public Law 119-21 changed charitable deductions starting in tax year 2026:¹²³

0.5% floor. Itemizers can deduct charitable contributions only to the extent they exceed 0.5% of AGI.
35% cap for the top bracket. For taxpayers in the 37% bracket, the tax benefit of itemized deductions is limited, so a deduction is worth at most 35 cents per dollar.
60% limit made permanent for cash gifts to public charities.
Non-itemizers can deduct up to $1,000 ($2,000 married filing jointly) of cash gifts to qualifying charities, but the IRS says gifts to donor-advised funds generally do not qualify for that deduction.

Donor-advised funds

A DAF is an account held by a sponsoring public charity. You contribute, take a deduction in the year of the gift (if you itemize), and later recommend grants to charities.⁴ For a W-2 earner, the common uses are:

Bunching. Combining several years of giving into one year so that itemizing beats the standard deduction, and so that more of the gift clears the new 0.5% floor.
Giving appreciated stock. Gifts of capital gain property held more than a year to public charities are generally deducted at fair market value, subject to a 30% of AGI limit, and the built-in gain is not taxed to you.³

You need a written acknowledgment from the sponsor that it has exclusive legal control over the assets; without it the contribution is not deductible.³ Once given, the money belongs to the sponsor.

Charitable remainder trusts

A CRT is an irrevocable trust. You transfer assets, the trust pays you (or other beneficiaries) an annual amount for life or a term of up to 20 years, and the remainder goes to charity. The remainder must be at least 10% of the initial value of the property. You get a partial deduction for the present value of the charity's remainder interest.⁵

CRTs are mainly used when you hold appreciated assets (such as company stock) and want to diversify and receive an income stream; the trust can sell the asset and defer the tax. Payments to you are taxed in a set order: ordinary income first, then capital gains, then other income, then return of principal.⁵

IRS warnings

The IRS lists illegal uses of CRTs, including inflating the basis of an asset to market value when it goes into the trust instead of using carryover basis, failing to account for the sale of trust assets, and mischaracterizing ordinary income or capital gain distributions as distributions of principal.⁵ Arrangements claiming a basis "step-up" inside a charitable trust are a problem area; see our charitable trust annuity step-ups page and abusive trust tax shelters.

What these do not do

A charitable deduction reduces income tax, not Social Security and Medicare tax on wages. And a gift is a gift: the deduction is worth at most the tax rate times the gift, so you are always out of pocket compared with not giving. See how to reduce taxes on W-2 income for other options.

Common questions

Is a donor-advised fund worth it for a W-2 employee in 2026?

It can be if you itemize, especially if you bunch several years of gifts into one year or give appreciated stock. Starting in 2026 only giving above 0.5% of AGI is deductible, and gifts to a DAF generally do not count toward the new deduction for non-itemizers.

How much of a charitable remainder trust gift is deductible?

Only the present value of the charity's remainder interest, which must be at least 10% of the initial value of the property placed in the trust, subject to the AGI limits.

Do charitable deductions reduce payroll taxes?

No. They reduce income tax if you itemize, not Social Security and Medicare taxes on wages.

Education only; not tax, legal or investment advice. Talk to a qualified professional before acting.

Sources

IRS, Tax year 2026 inflation adjustments including amendments from Public Law 119-21, https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill
IRS Publication 6196, Charitable contribution deduction tips for non-itemizers, https://www.irs.gov/pub/irs-pdf/p6196.pdf
IRS Publication 526, Charitable Contributions, https://www.irs.gov/publications/p526
IRS, Donor-advised funds, https://www.irs.gov/charities-non-profits/charitable-organizations/donor-advised-funds
IRS, Charitable remainder trusts, https://www.irs.gov/charities-non-profits/charitable-remainder-trusts

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