Article
One Big Beautiful Bill Act: Key provisions that will impact tax-exempt organizations
What your not-for-profit needs to know
July 16, 2025 · Authored by Larry Mohr, Zeinat H. Zughayer
The One Big Beautiful Bill Act (OBBBA or Act) was signed into law by President Trump on July 4, 2025. The Act has several provisions that affect tax-exempt organizations and higher education institutions, although many proposed elements from the House bill did not make it into the OBBBA. Not-for-profit organizations should become familiar with the new provisions and consult their tax advisors to determine the impact of these changes.
Prior law: Only taxpayers who itemize deductions can deduct charitable contributions.
OBBBA provision: Created a permanent cash contribution deduction for non-itemizers. The deduction is limited to $1,000 for single filers ($2,000 for joint filers). Notably, this deduction does not apply to contributions made to supporting organizations under section 509(a)(3) and to donor advised funds.
For taxpayers who itemize deductions, a limitation on charitable contributions was creating by imposing a floor equal to 0.5% of the taxpayer's contribution base for that taxable year.
Both provisions are effective for taxable years beginning after Dec. 31, 2025.
Prior law: Corporate taxpayers may generally deduct charitable contributions up to 10 percent (10%) of their taxable income.
OBBBA provision: This provision establishes a floor equal to 1% of taxable income for the deductibility of corporate charitable contributions. Excess of 1% is deductible up to the current limit of 10%. If a corporation's contributions exceed the 10% limit, the provision allows taxpayers to add the amount disallowed under the 1% floor to amount carried over to the following year.
This provision is effective for taxable years beginning after Dec. 31, 2025.
Prior law: Not applicable.
OBBBA provision: Creates a new tax credit up to $1,700 for individuals making charitable contributions to public charities that provide scholarships to qualifying elementary and secondary school students. To qualify for the scholarships, students must come from households with incomes at or below 300% of the area's median gross income and must be eligible to enroll in a public elementary or secondary school.
This provision is effective for taxable years beginning after Dec. 31, 2026.
Prior law: The first $5,250 of employer-provided educational assistance is excluded from an employee's gross income. Employer-provided education assistance includes the payment, by an employer, of an employee's educational expenses. Additionally, this also includes an employee's qualified student loan payments in the case of payments made prior to Jan. 1, 2026.
OBBBA provision: This provision permanently extends the exclusion of $5,250 from gross income for qualified education loan payments made by an employer and indexes this exclusion for inflation.
Prior law: IRC section 4968 imposes an excise tax on an applicable educational institution for each taxable year equal to 1.4% of the net investment income of the education institution.
OBBBA provision: This provision revises the excise tax framework on net investment income for certain private colleges and universities with a tiered system based on an institution's student-adjusted endowment (see table below). The OBBBA modifies which applicable education institutions are subject to the excise tax. Applicable institutions that have at least 3,000 tuition paying students during the preceding taxable year are subject to the tiered excise tax system. This is an increase from prior law that defined an applicable educational institution as one having at least 500 tuition paying students during the preceding taxable year.
Prior law: An excise tax on excess compensation paid to specific highly compensated employees by applicable tax-exempt organizations was limited to the five highest compensated employees of a tax-exempt organization. The excise tax rate is equal to the corporate tax rate multiplied by the sum of (1) any remuneration of more than $1 million paid to a covered employee for a taxable year and (2) any excess parachute payment paid to a covered employee.
OBBBA provision: Expands the definition of "covered" employee to any employee (or former employee) of any applicable tax-exempt organization (or predecessor) who was employed during any taxable year after Dec. 31, 2016. With this change, any employee of an applicable tax-exempt organization that receives remuneration of more than $1 million is now considered a covered employee. The exception for remuneration for medical services remains in effect.
