On July 4, 2025, President Trump signed the One, Big, Beautiful Bill Act (OBBBA), which contains several provisions that may affect your not-for-profit organization. Let’s take a look at a couple of the bigger changes.
Excess compensation tax
Since 2018, an excise tax has applied to nonprofits that compensate “covered employees” (generally the five most highly compensated employees or former employees during the tax year) in excess of $1 million. The excise tax is equal to the corporate tax rate (21%) multiplied by the sum of:
- Remuneration in excess of $1 million, including salary, bonuses and deferred compensation, and
- Any “excess” parachute payment.
The OBBBA expands the pool of covered employees. Starting in 2026, compensation over $1 million to any employee potentially triggers the excise tax. Although this expansion is likely to affect only large nonprofits, review your organization’s compensation policies before the change goes into effect.
Charitable contribution deductions
Your donors will also be affected by OBBBA provisions. The big news is that taxpayers who don’t itemize will be able to deduct a certain amount of charitable contributions. Currently, nonitemizers can’t deduct any donations. But starting in 2026, individuals can deduct up to $1,000 ($2,000 for joint filers) in cash donations to qualified charities. Because the new tax law makes the higher standard deduction permanent, there likely will continue to be many more nonitemizers than there were before 2018, when the standard deduction was significantly lower.
But the tax benefits of charitable giving will become a little less generous for itemizing taxpayers, also beginning in 2026. The existing 60% of adjusted gross income (AGI) ceiling for deducting cash charitable contributions is now permanent, but the OBBBA introduces a floor of 0.5%. This means that itemizers can deduct charitable contributions only once they exceed 0.5% of AGI. For example, donors with AGIs of $100,000 won’t be able to deduct their first $500 of 2026 donations.
The OBBBA also applies a 1% of taxable income floor to corporate charitable deductions beginning in 2026. However, in certain situations, corporations can carry forward the disallowed deductions for up to five years.
Although not directly related to charitable deductions, another OBBBA provision is expected to reduce wealthy taxpayers’ incentive to make charitable gifts. It makes permanent the high lifetime gift and estate tax exemption that had been scheduled to expire after 2025. The exemption will be $15 million for 2026 and annually adjusted for inflation after that.
Other items
Depending on the type of nonprofit, other tax law changes may apply. For example, the OBBBA generally raises the excise tax on private colleges and universities with net investment income of more than $750,000 per student. To learn about this and other potential financial repercussions, contact us.
© 2025