How will the new tax law impact nonprofit fundraising, compensation, and service delivery?
On July 4, 2025, President Donald Trump signed into law, H.R.1, The One Big Beautiful Bill Act, a sweeping tax reform package that promises to reshape the financial and operational landscape for nonprofit organizations across the United States. While the bill includes a few welcome incentives, it also introduces a host of new challenges that could significantly impact how nonprofits fundraise, compensate staff, and deliver services.
As the nonprofit sector prepares for these changes, understanding the nuances of the legislation is critical. In this article, we will unpack the key provisions of H.R.1 and explore its potential effects on nonprofit operations and philanthropy.
Key nonprofit related provisions found in H.R.1
Corporate giving limits
H.R.1 brings updates to charitable contributions recognized by corporations. Corporations, which were previously allowed to deduct charitable contributions up to 10% of their adjusted gross income (AGI), are now subject to a 1% floor. This means that corporations may only take a charitable deduction if the contribution equals at least 1% of their taxable income with a maximum charitable deduction of 10% for each tax year. Disallowed deductions can be carried forward for up to five years. This limitation may deter corporations who are less profitable from charitable giving since tax benefit has been adjusted.
Individual giving limits
Similarly to the changes in corporate giving limits, H.R.1 enacted revisions to charitable contributions that also may impact individual taxpayers. High-income taxpayers are now subject to limitations on itemized deductions. The limitation may be applicable to taxpayers in the tax brackets of 35%-37% and would generate a reduction in their tax benefit received for charitable contributions.
Universal charitable deduction
Prior to H.R.1 being enacted, taxpayers could only claim a deduction for charitable contributions if they chose to itemize on their tax return. Now, there is a permanent universal charitable deduction available to all taxpayers; regardless of whether they choose to itemize or take the standard deduction. The goal of this provision is to encourage and expand charitable giving participation. The deduction, which will only be applicable to taxpayers who do not itemize, will be up to $1,000 for single filers and up to $2,000 for joint filers.
College and university endowment taxes
In 2017, the Tax Cuts and Jobs Act (TCJA) introduced an excise tax of 1.4% on the net investment income for college and university endowments. With the passing of H.R.1, the excise tax has the potential to increase substantially. The step up in excise tax will be based off a tiered system. Colleges and universities that maintain a “student adjusted endowment” in the range of $500,000 and $750,000 would be subject to an excise tax of 1.4% with an increase in tax to 4.0% for endowments up to $2,000,000 per student. Endowments that exceed $2,000,000 per student will be subject to an 8% excise tax rate. This change will significantly impact the highly endowed institutions as the excise tax rates may potentially be quite higher than in prior years. This will likely scale down the funds available for the institution’s educational resources and programs.
Tax credit for donations to scholarship granting organizations
H.R.1 introduced a new, nonrefundable tax credit available to individuals until the end of 2029. The credit for contributions will be the greater of $5,000 or 10% of a taxpayer’s AGI. These contributions must be made to state-approved scholarship granting organizations.
Estate and gift tax
The estate and gift tax exemption amounts were last updated in 2017 with the TCJA. With the enactment of H.R.1, starting in 2026, the estate and lifetime gift tax exemption of $15,000,000 for single filers and $30,000,000 for joint filers has been indefinitely extended. There may be adjustments to these exemptions in the future with the changes in inflation.
Excise tax for highly compensated nonprofit employees
The excise tax of 21% for highly compensated individuals was introduced in 2017 with the TCJA and was only applicable to the top five highest paid employees earning over $1,000,000 yearly. With the enactment of H.R.1, the excise tax has the potential to increase, depending on the organization. The new act would impose the excise tax on all individuals earning over $1,000,000 during the year, eliminating the top five highest compensated employees’ limitation.
Expanded taxable benefits
The parking tax, which was introduced in 2017 with the TCJA and repealed in 2019 with the Taxpayer Certainty and Disaster Tax Relief Act, has been reinstated with H.R.1. Organizations may be subject to corporate level taxes on employee benefits, including parking and transportation fringe benefits. This significant adjustment may increase operating costs for many nonprofit organizations.
Next steps
While H.R.1 includes some incentives—such as a universal charitable deduction and tax credits for scholarship donations—many nonprofit leaders are sounding the alarm about increased financial burdens and administrative complexities. Nonprofit organizations must stay informed, engaged, and prepared to adapt to these newly imposed changes.
Change is coming fast—make sure your not-for-profit is prepared to navigate the new law. This is an ideal time to consult your Keiter Nonprofit Opportunity Advisor. Email | Call: 804.747.0000
The Keiter team will continue to share insights on new and changing regulations impacting nonprofit organizations.
About the Authors
Michaela works closely with her tax clients to share tax savings and planning opportunities. She is a member of Keiter’s Family, Executive & Entrepreneur Advisory Services team and the Not-For-Profit Industry team.
Jayme Mika is a member of our not-for-profit industry team and applies her industry insights to provide tax advice and opportunities to the Firm’s not-for-profit clients. Read more of Jayme’s not-for-profit tax insights on our blog.
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.
