Published: July 2025
The recently passed One Big Beautiful Bill Act (OBBBA) is bringing a major shake-up to the U.S. tax code, with significant implications for nonprofit organizations. While the headlines may focus on big-ticket corporate reforms, several provisions directly impact how nonprofits raise money, report to donors, manage compensation, and plan their finances.
This guide breaks down everything nonprofits need to know — in plain English.
1. Changes to Charitable Giving Rules
A. Above-the-Line Deduction for All Donors
What’s new: Starting in 2026, all taxpayers — even those who don’t itemize — can deduct charitable donations.
- Individuals: Up to $1,000
- Married couples filing jointly: Up to $2,000
What it means for you:
- More small-to-medium donors may give, knowing they’ll get a tax benefit.
- This could boost annual fundraising from middle-income households.
B. New Thresholds for Itemized Donations
What’s new: For those who do itemize, their total charitable giving must be at least 0.5% of their Adjusted Gross Income (AGI) to be deductible.
- Example: Someone with a $100,000 AGI must donate at least $500 to qualify.
- The 60% AGI limit for cash gifts is now permanent.
What it means for you:
- Larger donors are mostly unaffected.
- Smaller itemizers may be discouraged if they don’t meet the threshold.
C. Corporate Giving Rules Tighten
What’s new:
- Corporate donations must now exceed 1% of taxable income to be deductible.
- The 10% deduction cap remains.
- Contributions below the 1% floor can only be carried forward if future gifts exceed the 10% cap.
What it means for you:
- Corporate sponsors may rethink their donation amounts or timing.
- Be proactive in helping corporate partners navigate the new deduction math.
D. New Tax Credit for Scholarship Donations
What’s new: Starting in 2027, individuals can claim a tax credit (not just a deduction) for donations to Scholarship Granting Organizations (SGOs).
- Credit limit: Up to $1,700 per year
- Credits can carry forward up to 5 years
What it means for you:
- Great news for education nonprofits and private schools
- SGOs must meet federal requirements to qualify
2. Excise Tax Changes That Could Cost You
A. Increased Tax on College Endowments
What’s new:
- Threshold raised to colleges with 3,000+ paying students
- Excise tax rates now tiered: 1.4%, 4%, or 8% based on endowment per student
What it means for you:
- Fewer universities affected, but those that are may face significantly higher tax burdens
- Expect ripple effects on tuition, financial aid, and investment planning
B. Broader Excise Tax on High Compensation
What’s new:
- 21% tax now applies to any nonprofit employee earning over $1 million/year — including retirees and severance packages
- Previously limited to top five highest-paid employees
What it means for you:
- Larger hospitals, universities, and national orgs are most impacted
- Time to reassess compensation structures and executive agreements
3. How OBBBA Could Impact Your Nonprofit’s Finances
Opportunities:
- The new deduction could inspire more everyday giving
- Scholarship tax credits may drive targeted donations
Challenges:
- Stricter corporate giving rules could reduce large contributions
- Endowment taxes may limit university aid or programs
- High compensation taxes may push orgs to re-evaluate pay strategy
4. Key Action Steps for Nonprofits
- Understand your donor base: Educate smaller donors about the new above-the-line deduction
- Plan with corporate sponsors: Reframe giving strategy to align with new limits
- Review executive pay: Avoid surprises with excise taxes
- Audit endowment strategy: Universities need to model new tax exposure
- Stay updated: Tax policy is evolving — keep your finance team and board informed
Final Thought
The One Big Beautiful Bill Act isn’t just a policy change — it’s a strategic reset. For nonprofits, the path forward is clear: know the rules, prepare early, and turn compliance into opportunity.
Need help briefing your board or reworking your donor strategy? We’re here to help translate complexity into clarity.