The One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, introduces several tax changes directly affecting non-profit organizations. Below is an overview of some of the most relevant provisions:
Key Tax Provisions Impacting Non-profits
1. Charitable Giving Incentives
- Above-the-Line Deduction
Beginning in 2026, individuals can claim up to $1,000 ($2,000 for married couples) in above-the-line charitable deductions annually, increasing incentives for non-itemizing donors and potentially expanding donation streams for nonprofits.
- Changes to Itemized Deductions
A new minimum threshold of 0.5% for itemized charitable deductions is introduced, while the 60% of AGI cap for cash gifts to qualified charities is made permanent. This supports larger gifts from itemizing donors.
- Corporate Giving Limits
Corporations may now deduct charitable contributions only if they exceed 1% of taxable income, up to a 10% ceiling, with a five-year carryover for excess. This may affect the timing and volume of corporate donations.
2. Credits for Scholarship Granting Organizations (SGOs)
- A new nonrefundable credit (up to $1,700 per year) is available for contributions to qualified “Scholarship Granting Organizations.” This could boost funding for organizations supporting student scholarships, though it requires meeting specific IRS criteria.
3. Excise Tax Changes
- College & University Endowments
The excise tax on large endowments now applies to colleges/universities with at least 3,000 tuition-paying students. The tax rate is tiered (1.4%, 4%, or 8%) based on endowment size, potentially increasing the tax burden on affected institutions.
- Highly Compensated Employees
The 21% excise tax on compensation over $1 million is expanded to cover all current and former employees, as well as certain severance arrangements, not just the top five earners.
Implications for Non-profits
- Fundraising: New above-the-line deductions and SGO credits could motivate more individual donors and targeted gifts to education-based organizations.
- Corporate Partnerships: Stricter corporate deduction rules may alter the pattern or amount of corporate giving.
- Higher Education: Larger universities with substantial endowments face higher excise taxes, necessitating careful financial planning.
- Executive Compensation: Expanded excise taxes on highly paid staff underscore the importance of reviewing compensation policies.
Meranda Wacek, CPA and Manager, comments,
While some OBBBA provisions offer opportunities for increased funding and financial stability, others present new challenges and administrative burdens. The ultimate success of nonprofits in navigating these changes will depend on their ability to remain flexible, innovative, and proactive in addressing the new tax rules.. Stay tuned for further guidance as the government clarifies the law’s funding impacts for federal agencies and non-profits.
For tax planning guidance or questions about your organization’s strategy under OBBBA, please contact one of our experts at (888) 388-1040.
