Understanding fee coverage and tax deductibility
When supporters donate through Fundraise Up, they may see an option to cover transaction costs. This option affects the effective fee, which reflects the actual percentage of a donation that goes toward fees after all applicable costs are applied. If they turn this on, their donation amount is increased so that your organization receives (as close as possible to) the full amount they wanted to donate after fees.
How fee coverage works in Fundraise Up
It's important to understand that fee coverage doesn't eliminate fees for the organization. Instead, it increases the donation to cover these fees. Here's how it works:
- Original Donation Amount: The supporter enters their intended donation amount on the donation form.
- Cover Fees Option: The supporter is presented with an option to cover the platform and payment processing fees associated with their donation.
- Increased Donation Amount: If the supporter checks the "Cover transaction costs" box, Fundraise Up automatically calculates the additional amount required to cover the fees based on the original donation amount and the applicable fee rates.
- Total Donation: The supporter’s total donation amount is increased by the calculated fee coverage amount, ensuring that the organization receives the full intended donation after fees are deducted.
Example:
In both examples below, the supporter donates $100.00. These examples show how fee coverage impacts the organization’s effective fee.
| Fees not covered | Fees covered | |
|---|---|---|
| Donation amount | $100.00 | $100.00 |
| Covering fees | ❌ No | ✅ Yes |
| Platform fee rate | 4% of total charged | 4% of total charged |
| Processing fee rate | 2.9% + $0.30 of total charged | 2.9% + $0.30 of total charged |
| Total charged to supporter | $100.00 | $108.00 |
| Platform fee | $4.00 | $4.30 |
| Processing fee | $3.20 | $3.45 |
| Total fees | $7.20 | $7.75 |
| Payout amount | $92.80 | $100.25 |
Why it can feel like “more than 4%”
Supporters sometimes notice that the extra they pay looks like more than 4% of what your organization receives.
Using the example above:
- Your organization receives about $100.
- The platform fee is about $4.30, which is 4% of the total charged (about $108).
- When you compare $4.30 to the $100 your organization receives, it looks like about 4.3%. This reflects the organization’s effective fee, which compares total fees to the net amount received.
This is expected behavior because the 4% is calculated from the total charged to the supporter, not from the net amount your organization receives.
Tax deductibility of fee coverage
The tax deductibility of fee coverage in Fundraise Up is straightforward:
If the donations made to your organization are generally tax-deductible, then the additional amount donated to cover fees will also be tax-deductible.
This means that when a supporter chooses to cover fees, the entire total donation amount, including the original intended donation and the fee coverage amount, is eligible for a tax deduction, provided that your organization qualifies for tax-deductible contributions.