On July 4, 2025, Congress passed the One Big Beautiful Bill Act (OBBBA), introducing sweeping changes to the U.S. tax code. While the final version of the law excluded some of the most controversial provisions, it includes several key updates that significantly affect nonprofit organizations, private colleges, and their donors. Below is a summary of the most important provisions for the nonprofit sector:
1. Charitable Contributions: New Floors and Credits
For Individual Donors:
- Non-itemizers can now deduct up to $1,000 (or $2,000 for married couples filing jointly) for cash contributions to public charities. Donations to donor-advised funds or supporting organizations do not qualify.
- Itemizers must now exceed a 0.5% of AGI floor before charitable contributions become deductible. Disallowed deductions can be carried forward for up to five years.
- The 60% of AGI limit for cash donations to public charities has been made permanent.
For Corporate Donors:
- Corporations may only deduct charitable contributions above 1% of taxable income.
- The existing 10% annual cap remains, but disallowed amounts can be carried forward.
New Scholarship Donation Credit:
- A new tax credit of up to $1,700 is available for individuals who contribute to qualified scholarship-granting organizations serving K–12 students.
2. Increased Scrutiny on Executive Compensation
The 21% excise tax on compensation exceeding $1 million now applies more broadly:
- Previously limited to the five highest-paid employees, the tax now covers all current and former employees who exceed the threshold (dating back to 2016).
- This change increases potential tax exposure and affects how severance and separation agreements are evaluated.
Recommendation: Nonprofits should assess whether more employees are now subject to the tax and consider revising compensation and separation policies accordingly.
3. Higher Excise Taxes on Higher Education Endowments
Private colleges and universities with large endowments will face significantly increased excise taxes on net investment income:
| Endowment per Student | New Excise Tax Rate |
| $500K–$750K | 1.4% |
| $750K–$2M | 4.0% |
| Over $2M | 8.0% |
Additional changes include:
- Expanded Form 990 reporting, including total student counts and per-student endowment calculations.
- The student threshold for applicability increased from 500 to 3,000 tuition-paying students.
- New taxable income sources include student loan interest and certain federally subsidized royalties.
Next Steps for Nonprofits
With OBBBA now law, tax-exempt organizations should:
- Review charitable giving strategies for both individual and corporate donors.
- Reassess executive compensation plans and ensure Form 990 reporting reflects new requirements.
- Private colleges and universities must evaluate their endowment size, student counts, and revenue sources to understand their new tax liabilities.
For Chary organizations, Nonprofit Alliance suggests using generative AI to create an interactive decision tree that helps donors navigate charitable giving under the new tax law. The tool would personalize guidance based on a donor’s tax profile, explain relevant rules in plain language, and present recommended strategies in a user-friendly flowchart format.
Staying proactive is key. This new tax landscape presents both challenges and opportunities. Strategic planning and informed compliance will be critical as nonprofits navigate these changes.
Kamitani Financial Solutions specializes in nonprofit business and accounting—from policies and procedures to audit prep and Form 990 support. If your organization needs help interpreting these changes or developing donor communication tools, we’re here to assist. (Email: Info@kamitanifs.com)
Source: https://rsmus.com/insights/tax-alerts/2025/obbba-tax-exempt-orgs.html
https://www.foxrothschild.com/publications/nonprofits-and-donors-face-new-tax-rules-as-congress-passes-landmark-bill
Technical materials obtained from AICPA and NonProfit Alliance