Likewise, there are some notable provisions within the bill that could affect nonprofit, not-for-profit and other tax-exempt organizations across the board.
Now is a critical time for tax-exempt leaders to understand the potential impacts that OBBBA could have on their organizations' tax responsibilities and tax-planning strategies. In doing so, you can better prepare for the changes ahead and potentially explore options to reduce your organizational tax burden when it comes time to file in 2026 and beyond.
So, what are some of the key stipulations of OBBBA that could impact organizations that are currently tax-exempt under 501(c)(3) status?
Meanwhile, tax-exempt charitable organizations should also brace for changes to donations. At the individual level, for example, a new 0.5% floor on itemized deductions has been introduced—which means individuals who itemize can only deduct charitable contributions exceeding 0.5% of their adjusted gross income (AGI). As a result, some individuals may be deterred from donating to charitable organizations, which could affect fundraising efforts. Qualified charitable distributions that satisfy required minimum distributions are not subject to the 0.5% AGI floor.
New requirements are also being imposed when it comes to charitable giving at the corporate level. Specifically, OBBBA includes provisions that require businesses to donate a minimum of 1% of their taxable income in order for those contributions to be tax-deductible. In some cases, this might increase charitable giving—but for some corporations, donations may be discouraged completely.
Combine all of this with the increased standard deduction beginning with the 2025 tax year, and it's likely that more Americans will begin taking the standard deduction rather than itemizing their deductions. Unfortunately, this could reduce the incentive to make charitable contributions, which could have a further negative effect on tax-exempt charitable organizations. This is something that organizations will need to plan for in the years ahead, potentially exploring other avenues for fundraising and other continued support.
Effective starting in 2026, non-itemizers who take the standard deduction can still claim a deduction for cash contributions of up to $1,000 ($2,000 for a joint return). Non-cash contributions are not deductible if you take the standard deduction. This is a positive and would incentivize charitable giving.
The ability to deduct cash contributions up to 60% of adjusted gross income to public charities is made permanent. The 60% was set to expire at the end of 2025 and go back to 50%. Another positive incentive for additional charitable giving.
Although this provision will only affect certain private colleges and universities, it is worth noting because of its significant change from previous tax laws. Specifically, under OBBBA, larger universities could face tax rates of up to 8% on endowments, with specific tax rates varying based on the size of the endowment. Previously, this was a flat tax at a rate of just 1.4% on a school's net investment income.
As a result of this change, some private colleges and universities could face much higher taxes in 2025 and beyond—so they should plan accordingly for this increase in liability that could affect funding in other areas.
Finally, OBBBA has expanded the existing 21% excise tax on organizational salaries exceeding $1 million to include all employees (rather than just the five highest-paid employees under previous law). As a result, organizational leaders making more than $1 million will automatically face a 21% excise tax on all compensation exceeding that amount.
How might this affect tax-exempt organizations? With increased employment costs for individuals making more than $1 million per year, some organizations may be forced into revisiting pay structures, salaries and benefits for their leaders as a means of mitigating the effects of excise tax. However, it is worth noting that this change in excise tax doesn't go into effect until the 2026 tax year, giving organizations some additional time to plan and prepare.
In 2026, the estate and lifetime gift tax exemption will be permanently set at $15 million for single filers and $30 million for married couples filing jointly, indexed for inflation going forward, while charitable nonprofits will still play a role in helping reduce estate and lifetime tax liability through donations.
With OBBBA now in full effect, leaders of tax-exempt organizations need to make it a priority to learn what's included in the bill that could affect their tax planning and operations moving forward. Some of the changes under OBBBA may be advantageous for tax-exempt organizations (including some of the charitable giving incentives), whereas others could be problematic (including broader excise taxes on salaries and higher taxes on university endowments). Regardless, by knowing what's gone into effect and how it could impact your organization, you can plan accordingly and file with confidence.
During these times of change, organizational leaders are also encouraged to check in with their financial advisors and professional tax planners. This can be a great way to receive tailored insights and guidance regarding the many ways in which OBBBA could affect your organization, as well as practical tax-planning strategies to protect your long-term vision and mission.