America's nonprofits are seeing mixed effects from the One Big Beautiful Bill Act (OBBBA). As outlined below, alongside some promising incentives for the nonprofit industry lie significant, often concerning offsets.
New Charitable Deduction for Non-Itemizers
A permanent above-the-line ($1,000 single filer / $2,000 joint filers) deduction effective for tax years after December 31, 2025, is included in the bill. This change may help encourage giving among non-itemizers -- a group that dropped below 10% after the Tax Cut and Jobs Act was implemented in 2017. This change could help nonprofits expand their donor base especially among younger or middle-income individuals.
Limits on Itemized Charitable Deductions
Some nonprofits may see reduced giving from major individual donors due to a 0.5% Adjusted Gross Income (AGI) floor for itemizers (e.g., the first half-percent of AGI cannot be deducted) and itemizers in the top bracket are limited to 35% deduction.
In addition, corporations can deduct giving only exceeding 1% of taxable income (thus a 1% floor for corporate itemized gifts). This may discourage smaller corporate gifts and complicate nonprofit fundraising strategies.
Scholarship Granting Organization (SGO) Credit
Individual taxpayers will receive a non-refundable credit equal to the greater of 1 % of AGI or $5,000 for cash contributions to qualified SGOs that fund K–12 tuition scholarships. This may help benefit education-focused nonprofits.
Expanded Compensation Excise Tax
The excise tax of 21% now applies to all nonprofit employees earning over $1M (previously, this only affected the top five executives. This change will be particularly burdensome for health systems, universities, and communal organizations looking to retain key staff.
Endowment Excise Tax
Beginning with tax years starting after Dec. 31, 2025, colleges and universities face steeper excise-tax rates on net investment income:
1.4% on student-adjusted endowments amounts ≥ $500,000 and ≤ $750,000
4% on amounts > $750,000 and ≤ $2 million
8% on amounts > $2 million
These tax rates apply to private colleges and universities with an adjusted endowment of at least $500,000 and enroll at least 3,000 tuition-paying students (including part-time students) who are located in the U.S.
Cuts to Safety-Net Programs
Major reductions were included in the bill for Medicaid, SNAP, and Medical Insurance Marketplace subsidies, plus new work and verification requirements. The Congressional Budget Office projects these reductions will result in approximately 11 million fewer insured Americans with between 13-17 million Americans losing food and health benefits. This, in turn, may lead to more demand placed on nonprofits, especially hospitals, food banks, and those providing homelessness services.
What Nonprofit Leaders Should Consider Doing Next
-- Refresh fundraising strategies and look to increase contributions from non-itemizers and through workplace giving channels.
-- Budget for higher taxes for those affected by the increase in excise tax rates.
-- Prepare for service demand surge especially for those nonprofits providing services that are targeted through the reductions in Medicaid and SNAP.
-- Track IRS and Treasury guidance on deduction floors and excise taxes.
The Big Beautiful Bill offers modest new tools for nonprofits, such as non-itemizer deductions and scholarship credits, but it also shrinks the financial headroom for nonprofits by limiting deductions from major individual and corporate donors, taxing excess compensation and benefits, and exacerbating demand through safety-net cuts. A shift in fundraising focus, proactive financial planning, and community advocacy will be key to navigating these changes.
