Tax Exemption Greater Than Charity At Nonprofit US Hospitals

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A 2022 report from the Lowe Institute stated that the nonprofit hospitals in the US must go ahead with providing charity care or free or discounted services to patients who cannot afford care, and apart from that, they must also provide community benefits as well as investments as part of their tax-exempt status.

That said, nonprofit hospitals have been criticized as they have been receiving tax breaks more than the charity they are into and the benefits that they provide. The report analyzing 275 community hospitals has found that 227 hospitals went on to spend less in terms of charity care and community investments than the tax exemption they got.

Although charity care represents only a section of the overall community benefits which the nonprofit organizations must give out when it comes to their status, the startling fact is that nonprofits spent around $16 billion in terms of charity care in 2020 while getting $28 billion in tax exemptions, as per the KFF report.

These hospitals account for 58% of the total community hospitals across the US, and as per the seven out of nine years that have been analyzed on, the value of tax breaks rose for them as compared to the charity that was done.

KFF further added that the $5.7 billion decrease in tax cuts took place in 2018 and coincided with the Tax Cuts and Jobs Act that was under the Trump administration. This further reduced the federal corporate income tax rates and diminished the value of the elements that were exempt from federal income taxes.

Apparently, the highest single-year surge took place in 2020, when the tax exemption value for nonprofits rose to approximately $4 billion. This boost was driven by a jump that took place in the net income of nonprofit hospitals, which went from $47 billion in 2019 to $64.5 billion in 2020.

In 2020, the nonprofit hospitals were ultimately exempted from around $14.5 billion in federal taxes, mainly for not having to pay their corporate income taxes. Although, due to the pandemic, the net income decreased from patient care and government relief, investment income offset losses, and thereby the boost in the net income led to an increase in the value of not paying taxes, as per KFF. It is well to note that nonprofits were also exempted from around $13.2 billion in state and local taxes in 2020.