While early drafts of the One Big Beautiful Bill Act (OBBBA) raised fears of sweeping tax burdens for nonprofits, the final version (as of this writing) softens some of the harshest proposals but still creates significant changes that tax-exempt organizations should understand.
Here are the most relevant provisions.
Excise Tax on Salaries Over $1 Million
The new law expands the 21% excise tax on compensation of more than $1 million to cover all employees of tax-exempt organizations, not just the top five. This applies for tax years beginning after 2025; compensation for medical services remains excluded.
For large nonprofits with many well-compensated staff, the provision could significantly increase employment costs. Boards and leadership may want to revisit how their executive pay is structured and review these contracts.
OBBBA’s Excise Tax on Investment Income of Private Universities
Private universities are also affected. Those with at least 3,000 tuition-paying students and per-student assets thresholds will now face a tiered excise tax on net investment income, with progressive rates of 1.4%, 4%, and 8%. The top rate applies to institutions holding assets of more than $2 million per student.
In addition, Congress broadened what counts as taxable income. Interest earned on university-issued student loans and certain royalties from federally funded research will now be included. These changes apply to tax years beginning after 2025.
This measure may shift resources away from scholarships, research, and operating budgets at the nation’s wealthiest schools.
Charitable Giving Rules Changes
The new tax law refigures how individuals and corporations approach charitable giving. A permanently higher standard deduction ($15,750 for single filers and $31,500 for joint filers, indexed for inflation) means fewer people will itemize, reducing the number who can claim a direct charitable deduction, and potentially lowering their desire to donate.
What’s more, starting in 2026, taxpayers who itemize can only deduct contributions above 0.5% of adjusted gross income, which may discourage smaller donations. With even fewer taxpayers eligible to itemize, and deductions capped for high-income earners, some observers fear a chilling effect on giving.
On the positive side, however, effective for tax years beginning in 2026, a new “above-the-line” charitable deduction allows taxpayers who do not itemize to deduct up to $1,000 for individuals and $2,000 for married couples filing jointly. Advocates expect this will encourage broader-based giving, especially among households that previously received no tax benefit for their donations.
For corporations, charitable gifts must equal at least 1% of taxable income to qualify for a deduction. Some corporations that give below 1% will need to increase giving to preserve deductibility – or accept no deduction.
What Didn’t Make It Into the OBBBA
Several of the most controversial provisions were left out of the final bill to the relief of many nonprofits. They will not face renewed taxes on employee parking, restrictions on the research exemption, taxes on logo royalties, or higher excise taxes on private foundations. A proposal to expand IRS authority to revoke tax-exempt status of “terrorist-supporting organizations” was also dropped.
Outlook and Next Steps
While the OBBBA incentivizes middle-income donors, it also reduces tax benefits for high-net-worth individuals and corporations. Costs are likely to rise for organizations with highly paid staff and wealthy universities with large endowments. Therefore, the OBBBA presents positives and negatives for nonprofits.
Planning in the new tax landscape is critical. From adjusting executive compensation to evaluating fundraising approaches, organizations need to budget for these changes and put a plan in place to continue advancing their mission. Let’s explore how your organization can adapt and keep your mission thriving – reach out to CBM NFP advisor, Joe Barreca, today!
