Article
One Big Beautiful Bill Act: Key provisions that will impact tax-exempt organizations
What your not-for-profit needs to know
Jul 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.
Other notable provisions
No tax on overtime
Prior law: Not applicable.
OBBBA provision: Allows for a maximum deduction qualified overtime income of $12,500 ($25,000 for joint returns). Phasing out deduction for joint filers with adjusted gross income over $300,000 ($150,000 for other filers). Employers are required to separately state the amount of qualified overtime on their employee's Form W-2. This provision is effective for years beginning after Dec. 31, 2024 and ending before Jan. 1, 2029.
Trump Accounts
Under the OBBBA, a new tax-favored account similar to a nondeductible IRA was created for U.S. citizens under age 18. Trump Accounts intend to give families the opportunity to provide their children with a substantial head start on retirement saving.
Extension of increased estate and gift tax exemption amounts and permanent enhancement
Current law: This increased estate and lifetime gift tax exemption amount is set to expire after Dec. 31, 2025.
OBBBA provision: This provision permanently extends the estate and lifetime gift tax exemption, increasing the exemption amount to $15 million per individual in 2026 and indexes the exemption amount for inflation going forward.
Unrelated business taxable income is not increased by an amount of certain fringe benefits expenses.
The House bill that would have increased unrelated business taxable income for tax-exempt organizations by including qualified transportation fringe benefits was not include in the final Act. As a result, these transportation fringe benefits remain exempt from unrelated business income tax.
Name and logo royalites are not treated as unrelated business taxable income.
Income from the sale or licensing by an organization of its name or logo remains exempt from unrelated business taxable income.
Research income remains exempt for unrelated business taxable income regardless of accessibility to the public.
- All income from research performed by a not-for-profit organization whose primary purpose is to carry on research that is freely available to the public, including income from private research, is exempt from unrelated business taxable income
- The House bill would have revised IRC section 512 to increase the unrelated business taxable income of a tax-exempt organization by including the income generated from non-public research whose tax-exempt purpose is to provide publicly available research as unrelated business income
Private foundation's net investment income is not increased.
- Net investment income for private foundations remains subject to an excise tax of 1.39%
- The House bill attempted to update the excise tax framework on net investment income for private foundations by introducing a tiered system that would have resulted in an excise tax ranging from 1.39% to 10%
Baker Tilly can help
The OBBBA has notable changes that may impact your tax-exempt organization and its fundraising. Not-for-profits should consult tax professionals to incorporate the new provisions into daily operations.
Baker Tilly's tax team has analyzed the OBBBA in-depth and understands the impact of the Act on not-for-profits. If you have questions about how these provisions may affect your organization, please contact us for further guidance and support.