The recently passed One Big Beautiful Bill Act (OBBBA), signed into law on July 4, introduces several changes that nonprofits and their donors should pay attention to.
Some of these updates affect how donations are treated. Others impact reporting, compensation, and even fundraising strategies.
If you work with or run a nonprofit, this isn’t something to ignore. But don’t worry, here’s a clear, straightforward breakdown of what’s changing and what it means for you.
What’s Actually Changing?
Let’s walk through the key updates in plain English.
1. New Deduction for Everyday Donors
People who don’t itemize their taxes can now claim a deduction for cash donations:
- Up to $1,000 (single filers)
- Up to $2,000 (married couples)
This is a big deal because it encourages more everyday donors to give.
One catch: This doesn’t apply to donations made to donor-advised funds or certain supporting organizations.
2. New Limits for Itemized Deductions
If someone does itemize, there’s now a minimum threshold (0.5% of income) before charitable deductions kick in.
In simple terms:
Some high-income donors may not get the full tax benefit they used to.
Example: A couple earning $500,000 could lose around $2,500 in deduction value.
3. Changes for Colleges & Universities
Private colleges and universities will see updates to excise tax rules:
- The student threshold jumps from 500 to 3,000
- The flat 1.4% tax is replaced with a tiered system
This mainly affects institutions with large endowments.
4. New Tax Credit for Scholarship Donations
Starting in 2027, donors can get a tax credit (not just a deduction) of up to $1,700 for supporting certain scholarship programs.
This is important because:
A tax credit directly reduces taxes owed (stronger than a deduction)
But it applies only if:
- Students meet income criteria
- Donations go to eligible public charities
5. New Rules for Corporate Giving
Corporations now face a 1% minimum threshold before they can deduct charitable contributions.
This might lead companies to rethink how they give, possibly shifting toward:
- Sponsorships
- Community partnerships
6. Overtime Pay Reporting Changes
There’s now a deduction available for overtime income:
- Up to $12,500 (single)
- Up to $25,000 (married)
But nonprofits must now separately report overtime pay on Form W-2, which adds more work on the payroll side.
7. Expanded Tax on High Compensation
Previously, only the top 5 highest-paid employees were subject to excise tax if compensation exceeded $1 million.
Now: Any employee (or former employee) earning over $1 million may trigger this tax
This means nonprofits need to track compensation more carefully than before.
What This Means for Nonprofits
These changes go beyond tax rules they affect how nonprofits operate day to day.
Here’s what’s likely to happen:
- Donor behavior may shift
More small donors may give, while large donors may rethink their contributions - Corporate giving could change
Less direct giving, more strategic partnerships - More admin work
Payroll updates, compliance tracking, and reporting will increase - Planning gets more complex
Both nonprofits and donors will need better strategies to maximize benefits
What You Should Do Now
Instead of waiting, here’s how you can get ahead:
Understand your donors
Knowing who itemizes and who doesn’t it affects how they give.
Educate your donors
Help them understand new opportunities like scholarship credits or timing donations.
Rethink fundraising strategies
Look at programs that align with new tax benefits.
Review payroll and compensation
Make sure you’re tracking high earners and overtime correctly.
Stay updated
These rules may continue to evolve, especially around large institutions and tax policies.
Final Thoughts
The OBBBA brings both challenges and opportunities.
Yes, there’s more complexity.
But there’s also room to:
- Attract new donors
- Offer better guidance
- Build smarter strategies
The nonprofits that stay informed and adapt early will be in the best position moving forward.
Because at the end of the day, it’s not just about compliance
It’s about using these changes to your advantage.
