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I have a question about PayPal Giving Fund.

About a year ago, I called them on the phone (I don't remember what number I called, but it was a line intended for donors). I asked the representative this question: If I donated $100 to a charity on PayPal Giving Fund using a credit card, how much money would the charity ultimately receive? They told me that the charity would receive $100. Is this accurate? Is it misleading?

Context and caveats

  • This is not an attack on PayPal or the phone representative. It just seems to me like there could be some complexity involved that would make it hard to guarantee this. For example, maybe in PayPal's mind "$100 going to the charity" just means "PayPal doesn't take a cut," but some other credit card interchange fee is still paid by the charity. I don't know how these things work.

  • While I was on the phone with that representative, I briefly re-asked the question a few different ways to try to get at the complexity there. They were very patient with me, seemed to know what they were talking about, and kept saying "yes."

  • That's consistent with what PayPal says and with what this competitor site says. However, I know there have been issues in the past with PayPal not being appropriately transparent about this program and creating issues for charities (same third-party link).

  • Also, whenever I ask about this I am told that this is stupid, I should just write a check or else use the most prominent donation option available on a charity's website, that everything else in an administrative pain for the charity and there must be a catch somewhere. For those reasons, I'm still not convinced by my phone call.

  • In case you're wondering why I don't just write a check or use the most prominent displayed option on a charity's website, the answer is that I would like to get credit card rewards for my donations if possible. My target charity is GiveDirectly, which is pretty cozy with PayPal. So I presume some of the downsides (administrative burden, delays, shadiness) would not apply to me. Interesting PSA: per Harper-Reinstate Monica, given my circumstances I might get more out of my charitable contributions by transferring stocks to a DAF and then immediately donating those stocks to a charity. The avoided capital gains tax could be more than the credit card rewards. (In this case the savings come from Uncle Sam rather than the bank; determine the ethics of that as you will. To be fair, I also don't know what transaction costs are associated with the donation of assets from the DAF to the charity.) Thanks to @keshlam as well.

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    Biased source (they're a PPGF competitor), but interesting: givebutter.com/blog/paypal-giving
    – Bobson
    Dec 17, 2022 at 23:26
  • You’re asking a convoluted bunch of questions which all boil down to “what percentage of my donation goes to the charity?”
    – RonJohn
    Dec 22, 2022 at 18:55

2 Answers 2

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501c3 manager here.

Don't worry about it. Really.

Every charity manager knows that fundraising is a difficult task and a serious expense. You can spend 20-40% of the money you earn just in the expenses of the campaign. It's maddening. I can't tell you how many times I wore out my hands stuffing envelopes for results that were disappointing.

In fact, most of the charity spam phone calls and postal mail you get is done by for-profit fundraisers who do the fundraising on a cost-plus basis. You may have noticed they'll spend 10 times the value of your gift trying to solicit more gifts, that is for-profit fundraisers scatter-shotting the entire donor list to find whales. There have been cases in California where the fundraiser actually ended up collecting 91% of the money that went to the charity.

So, having to pay maybe 3% credit card transaction fees on a freely given donation that did not need to be fundraised, is really not objectionable to any nonprofit manager worth their salt.

If you want a donation receipt, ask for one. They are required above certain donation limits, but even below that they should do it if you ask. Of course, that still costs a stamp.

I could see PayPal waiving the credit card fees for charities. However, as far as the tax deductibility of a particular charity, I would not count on a credit card bill line item unless the named entity on the bill only gives to tax-deductible charities. Only certain charities are tax deductible. The IRS has a database of those.

A great many entities which ask for "donations" which are not tax deductible - people on Youtube, Patreon, Kickstarter, political entities, churches who are politically active, many things technically called nonprofits - it is a morass.

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    @BeeePollen that is quite likely. "A charity which gives to other charities" is called a Donor Advised Fund. I have a somewhat different type of DAF at Fidelity Charitable, but they have a high upfront commitment to start the fund and you can store money in the fund. Giving through them is very advantageous because they screen charities, and conceal my name when needed.
    – Harper - Reinstate Monica
    Dec 22, 2022 at 21:45
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    For me the attraction of setting up my own DAF account was that it gives me a way to donate appreciated securities (and avoid the capital gains tax on them) even if the target charity isn't set up to accept same. And it lets me aggregate most of my donations into a single transaction rather than needing 50 lines on my tax return to include everything. Plus being able to automate those donations on a monthly or yearly basis. Downside is that some money does to go supporting the DAF's maintenance, but it isn't much compared to what I'm pumping through the fund.
    – keshlam
    Dec 23, 2022 at 7:00
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    @Keshlam yeah, Fidelity Charitable charges only 0.6% per year for the money I store in the DAF, and nothing otherwise (Well the mutual funds have a trivial expense ratio e.g. 0.12%). I asked them bluntly how they feel about "Free Riders" who don't store money in their DAFs and merely use them as a free pipeline to convert complex donations they immediately re-donate. They said they don't mind at all.
    – Harper - Reinstate Monica
    Dec 23, 2022 at 7:44
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    Yep, just as you could donate them directly to the charity and not pay cg. Essentially, the DAF is a charity that funds other charities.
    – keshlam
    Dec 23, 2022 at 18:20
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    @BeeePollen Someone must pay the capital gains tax. If it's the DAF/charity, guess what their tax rate is? 0% :)
    – Harper - Reinstate Monica
    Dec 23, 2022 at 18:25
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I suspect Paypal is writing off the fee they aren't charging as a deductable donation of services, and treating the rest as an advertising expense. They want to get you in the habit of using their system.

But this is easily tested: Make a donation, then see if the receipt from the charity matches what you paid. If it matches, and you don't see a fee on your receipt from PayPal, there is no fee.

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    I don't think that this means anything. The receipt would match the donation, but the charity may still be charged fees for using the payment processor. This is no different than using a credit card in a store - the receipt is what you paid, but the merchant may receive less.
    – littleadv
    Dec 17, 2022 at 21:39
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    Maybe. I'd still say asking the charity is the simplest answer if you don't trust PayPal's honesty.
    – keshlam
    Dec 17, 2022 at 23:47
  • That's a good idea, I will try that.
    – BeeePollen
    Dec 18, 2022 at 2:37

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