Navigating the Changes: What the One Big Beautiful Bill Act Means for Not-for-Profits

The recent passage of the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, brings several notable changes that will impact not‐for‐profit (NFP) organizations and their donors. From new deduction rules to modified excise taxes and updated reporting requirements, nonprofits and their financial teams must understand what’s new—and how to adapt. This newsletter breaks down the important features of the OBBBA, how they affect nonprofits, and what steps organizations should take to stay compliant and positioned for opportunity.

Key Provisions of the OBBBA Affecting Nonprofits

Here are the major changes under the OBBBA that nonprofit organizations and their accountants need to be aware of:

1. Permanent Cash Contribution Deduction for Non-Itemizers

• Non‐itemizers can now take a permanent deduction for cash contributions: up to US$1,000 for single filers, and US$2,000 for married filing jointly.
• However, this deduction does not apply to contributions made to supporting organizations under Section 509(a)(3) or to donor-advised funds.

2. Limitation (Floor) on Charitable Contributions for Itemizers

• For those who do itemize deductions, charitable contributions are now subject to a floor (minimum threshold) equal to 0.5% of the taxpayer’s “contribution base” for the year.
• This means high-income donors may find that some of their giving doesn’t reduce their tax burden as much as before. For example, a married couple with AGI of US$500,000 might lose US$2,500 in charitable deduction benefits due to this floor.

3. Excise Tax Modifications on Private Colleges & Universities

• The student threshold for triggering the excise tax has been raised: institutions must now have 3,000 tuition‐paying students (up from 500) to be potentially subject to tax.
• The previous flat rate of 1.4% on net investment income is replaced by a tiered rate based on the level of the institution’s student adjusted endowment.

4. New Tax Credit for Scholarship Contributions

• Starting after December 31, 2026, individuals who contribute to public charities that provide scholarships to eligible elementary/secondary school students may claim a tax credit of up to US$1,700.
• Eligibility generally requires students to be from households with incomes below 300% of the area’s median income and eligible to attend a public elementary or secondary school.
• Importantly, this credit is a direct offset of tax liability (not just a deduction) and is not subject to many of the limitations that apply to charitable deductions.

5. Corporate Charitable Contribution Deduction Floor

• A new 1% floor on taxable income is introduced for corporate charitable contributions. Contributions above that may be deductible up to 10%. Excess amounts over 10% can be carried forward.
• Smaller and mid-size corporations may especially reconsider how they make charitable contributions (possibly shifting toward sponsorships or community event support) because of these changes.

6. Overtime Income Reporting & Deduction

• The OBBBA introduces a maximum deduction for qualified overtime income: US$12,500 for single filers, US$25,000 for joint returns.
• Nonprofits must now separately state qualified overtime income on Form W-2. This adds to reporting requirements and could affect payroll processes.

7. Expanded Excise Tax on Excess Compensation

• Earlier only the top five highest-paid employees of a tax-exempt organization were subject to an excise tax when compensation exceeded US$1 million. Under the new OBBBA rules, any employee or former employee with compensation above US$1 million in any tax year after December 31, 2016 is potentially subject.
• The exception for remuneration for medical services remains in force.

Impacts & Challenges for Nonprofit Organizations

These changes aren’t just about technical tax law. They carry real potential impacts:

• Fundraising behavior may shift. Non-itemizer donors may be more active, though itemizers may be more constrained.
• Corporate giving might tilt away from direct giving toward sponsorships or other structures.
• Administrative burden is likely to increase: payroll reporting adjustments, identifying all employees exceeding compensation thresholds, etc.
• Financial planning becomes more complex. Nonprofits (and their donors) may need to experiment with tools like donor-advised funds or “stacking” contributions.
• Advocacy and awareness will be essential. Institutions—especially private colleges/universities—may need to engage with peers, trade associations, etc., to monitor shifts or proposed future legislation tied to endowments or large-asset tax rules.

What Nonprofits Should Do Now

Here are some actionable steps nonprofits should consider to adapt proactively:

1. Review donor profiles: Identify how many donors are itemizers vs non-itemizers; understand their likely responses under the new rules.
2. Educate donors: Provide guidance/counsel on strategies like donor-advised funds or timing/phasing of contributions (“stacking”) to maximize tax benefits.
3. Adjust fundraising strategies: Consider more “creditworthy” scholarship programs or public-charity scholarship funds that qualify for the tax credit; rework sponsorship/community event options for corporate partners.
4. Audit payroll and compensation policies: Ensure that all compensation over US$1 million is tracked; prepare for new reporting on overtime.
5. Monitor excise tax exposure: Especially for institutions with endowments or many students; evaluate whether new thresholds/tier rates might apply to you.
6. Engage in policy/advocacy: Maintain awareness of how these rules may evolve; join with peer nonprofits to share information and possibly influence future changes.

Conclusion

The One Big Beautiful Bill Act introduces several reforms that reshape the landscape for charitable giving, nonprofit finance, and tax reporting. While there are compliance challenges and administrative costs ahead, there are also opportunities—for donors, for nonprofits, and for those that can plan strategically. For not-for-profit organizations and their accountants, the key will be staying informed, adjusting systems and policies, and helping stakeholders understand how best to navigate the changes. With thoughtful adaptation, many of these new rules can be turned into advantages rather than obstacles.