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Nonprofit Tax Provisions in the One Big Beautiful Bill Act

By Ross Lockwood |

As we wrap up our blog series on the One Big Beautiful Bill (OBBB) Act, we turn our attention to how this sweeping legislation affects nonprofit organizations. While much of the OBBBA focuses on individual and business tax reform, it also introduces several important changes for charitable giving, nonprofit operations, and institutional endowments.

Above-the-Line Tax Deduction for Charitable Contributions

Effective for tax years after December 31, 2025

  • New above-the-line deduction for charitable donations

  • Limits:

    • $1,000 for individuals

    • $2,000 for married couples

  • Available to all taxpayers, including non-itemizers

  • Designed to encourage smaller-scale charitable giving

Charitable Contributions – Itemized Deduction Limitations

Effective for tax years after December 31, 2025

  • Introduces a 0.5% minimum threshold for itemized charitable deductions

  • Makes 60% AGI limitation for cash contributions to qualified charities permanent

Scholarship Granting Organizations (SGO) Tax Credit

Effective for tax years ending after December 31, 2026

  • Establishes a nonrefundable federal tax credit for donations to SGOs

  • Key details:

    • Must be made to SGOs operating in states that elect to participate

    • Credit capped at $1,700 per taxpayer

    • Reduced by any similar state-level tax credits

    • 5-year carryforward for unused credit

  • Potential benefit to private and independent schools through increased funding for students

Increased Excise Tax on Certain Endowment Funds

Effective for tax years beginning after December 31, 2025

  • Applies to nonprofit colleges/universities with 3,000+ tuition-paying students

  • Replaces the flat 1.4% excise tax (from TCJA) with tiered rates:

    • 1.4%, 4%, or 8%, based on endowment-per-student ratio

  • State colleges and universities remain exempt

Expanded Excise Tax on Highly Compensated Nonprofit Employees

Effective date not specified but presumed post-enactment

  • Expands existing 21% excise tax to apply to:

    • All current and former nonprofit employees earning over $1 million/year

  • Previously applied only to the top five highest-paid employees

Corporate Charitable Deduction Limitations

Effective for tax years after December 31, 2025

  • New deduction range:

    • Only amounts over 1% of taxable income and under 10% qualify

  • Carryforward rules:

    • Contributions under the 1% floor only eligible for carryforward if total exceeds the 10% cap

  • May discourage smaller corporate donations

Summary

The OBBBA brings a mix of opportunities and challenges for nonprofit organizations. While some provisions may boost giving and revenue—particularly among individual donors—others impose new limitations and excise taxes that could affect operations and funding models.

To better understand how these changes may impact your organization, connect with the nonprofit tax team at Perkins & Co.