On July 4, 2025, President Trump signed into law the sweeping One Big Beautiful Bill Act (OBBBA)—a landmark piece of legislation that overhauls key aspects of the U.S. tax code.
While much of the media attention has focused on individual tax cuts and corporate incentives, the bill contains several important provisions that directly affect nonprofit organizations and charitable giving behavior.
This article highlights the key takeaways nonprofits should be aware of and the actions they can take to prepare.
Key Provisions Impacting Nonprofits
1. Universal Charitable Deduction Reinstated
One of the most nonprofit-friendly provisions in the OBBBA is the return of a universal charitable deduction—allowing all taxpayers, even those who do not itemize, to deduct a portion of their charitable contributions. This provision aims to incentivize charitable giving across a broader spectrum of taxpayers, especially among lower- and middle-income households.
Additional giving may increase related to new tax credits offered for scholarship donations, and the reduction of the estate tax exemption, which can be attractive to charitable bequests.
Implication: Nonprofits may see an uptick in small- to mid-sized donations. Organizations should consider launching donor education campaigns to highlight this benefit to supporters.
2. Floor on Charitable Contributions from Corporations
The OBBBA contains a 1% minimum threshold for corporate charitable contribution deductions. Under this provision, corporations must contribute at least 1% of their taxable income to be eligible for a charitable deduction. Further guidance is expected to determine if the deduction will apply to the full amount donated or only to the portion exceeding the 1% floor.
Implication: This new floor may reduce the incentive for certain corporations to make charitable contributions if they cannot meet the 1% threshold, potentially reducing overall corporate giving. Over 2,300 charitable organizations have urged lawmakers to reverse the provision, citing the potential harm to nonprofit funding and program sustainability.
3. Excise Tax Increases on University Endowments
Private colleges and universities with endowments exceeding approximately $2 million per student now face an increased excise tax of up to 21%. The scope of taxable investment income may also expand to include previously exempt categories like student loan interest.
Implication: Educational institutions must prepare for higher tax outflows and should revisit their investment strategies and payout models. Transparency and planning around administrative costs will become more important than ever.
4. Reduced Federal Support for Social Programs
While not directly targeted at nonprofits, the OBBBA includes deep cuts to programs such as Medicaid, SNAP (food assistance), and federal housing aid. These changes will likely lead to greater community reliance on nonprofit services—especially in the areas of healthcare, food security, and housing.
Implication: Human service nonprofits may see a sharp rise in demand as government support retracts. Strategic planning and development efforts should reflect this anticipated shift.
5. Business-Friendly Tax Provisions Could Affect Nonprofit Affiliates
The bill contains several provisions that impact businesses, such as:
- Immediate expensing of R&D costs
- Permanent 20% deduction for qualified business income (QBI)
While not directly applicable to 501(c)(3) entities, these changes could benefit taxable affiliates of nonprofits (e.g., LLCs owned by the nonprofit or UBIT-generating activities).
Implication: Nonprofits with business-like operations or for-profit arms should review whether these new tax breaks could reduce their tax liabilities.
6. Executive Compensation Excise Tax
The bill expands the 21% excise tax on compensation of over $1 million to all employees of charitable organizations. However, compensation paid to employees for medical services at nonprofit hospitals and health systems remains exempt.
Implication: Nonprofit organizations should reassess compensation and benefits packages for all employees earning close to $1 million per year, and budget for increased excise taxes for those employees earning more than $1 million per year.
6. 1099 Requirements
The reporting threshold for both Form 1099-MISC (for miscellaneous income such as rents, prizes, and awards) and Form 1099-NEC (for non-employee compensation like payments to independent contractors) will increase from $600 to $2,000 for the 2026 tax year. For 2027 and subsequent years, this threshold will be adjusted for inflation. Backup withholding requirements will similarly be increased to $2,000 and then indexed for inflation in subsequent years.
Implication: The administrative burden of filing 1099s will decrease for many organizations with an increase in threshold. It’s still imperative that organizations collect required documents for all vendors, such as the W9, for proper record keeping.
Effective Dates & Planning Timeline
Most of the nonprofit-specific provisions, including excise tax changes and the universal charitable deduction, apply to tax years beginning after December 31, 2025. That means organizations should prepare now for implementation in calendar year 2026 and beyond.
What Should Nonprofits Do Now?
Here are practical steps your organization can take:
- Educate your donor base about the new universal charitable deduction—especially if your supporter base includes non-itemizers.
- Model the financial impact of higher excise taxes for educational institutions with a large endowment.
- Engage with funders and policymakers to help fill the gap left by potential cuts to federal programs.
- Evaluate affiliated taxable entities for opportunities under the new R&D and QBI rules.
- Monitor increased service demand, especially in vulnerable communities disproportionately affected by entitlement program reductions.
