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The tax and regulatory changes impacting nonprofit organizations
After weaving its way through both houses of Congress on party-line votes, the One Big Beautiful Bill (OBBB) Act was signed by President Trump on July 4, 2025. And from a tax perspective, your nonprofit may not get by unscathed. While the final version of the bill did cut several provisions that would have increased tax liabilities for nonprofits, the new law will still impose a higher tax burden on certain types of organizations. It also introduces new rules for charitable contributions, ends key energy tax incentives and modifies the excise taxes on organizations that offer high salaries to employees. Keep reading to learn how the OBBB’s provisions and other potential regulatory changes will impact your nonprofit. Unless otherwise stated, all new laws are effective for taxable years beginning after December 31, 2025. The OBBB expands existing taxes on certain exempt organizations As a result of the OBBB becoming law, certain nonprofit organizations will now face higher taxes. Nonprofits with employees who are paid over $1 million may also be subject to an excise tax. Here are the specifics of these two major changes: 1. Tiered net investment income tax on private colleges and universities Under current law, certain nonprofit educational institutions (excluding state colleges and universities) are subject to an excise tax on their net investment income at a flat rate of 1.4%. Under the new law, these educational institutions will face a tiered tax rate schedule rather than a flat 1.4% rate. The tiered tax rates are based on a metric called the student adjusted endowment, which is essentially the fair market value of an institution’s assets (excluding exempt purpose assets) divided by its number of students. Under certain circumstances, institutions may need to include the assets of a related organization when calculating the student-adjusted endowment. Student adjusted endowment Tax rate Between $500,000 and $750,000 1.40% Between $750,001 and $2M 4.00% In excess of $2M 8.00% The definition of net investment income is also expanded to include interest from student loans made by an educational institution, as well as any federally subsidized royalty income. In some cases, the net investment income of a related organization must be included in an institution’s net investment income as well. Although this will result in an increased tax liability for certain nonprofit organizations, the tiered tax rates are lower than what was proposed in previous versions of the bill. 2. Broader excise tax on employee compensation over $1 million Nonprofit organizations currently pay an excise tax on compensation in excess of $1 million given to any of the organization’s top five covered employees. Under the new law, the excise tax will now apply to compensation of all employees who receive in excess of $1 million, not just the top five. New and revised limits on charitable contribution deductions Limits on charitable deductions from both corporations and individuals are also changing. Here are the key rule shifts: 1. New 1% floor for charitable contributions made by corporations Under current law, corporations are allowed a deduction for charitable contributions. The deduction is limited to 10% of the corporation’s taxable income for the year, while contributions in excess of the 10% ceiling can be carried forward for five years. These rules remain unchanged. However, the OBBB adds a 1% floor in addition to the 10% ceiling. If total contributions do not exceed 1% of the corporation’s taxable income for the year, no deduction is allowed. Contributions disallowed by the 1% floor can be carried forward only from years in which the 10% limitation is exceeded. 2. 0.5% floor on charitable contribution deductions made by individuals In addition to the various existing limitations on charitable contribution deductions made by individuals, there will now be a 0.5% floor. Aggregate contributions of an individual will be allowed only to the extent they exceed 0.5% of the taxpayer’s contribution base for the taxable year, still subject to other existing limitations. The contribution base is the taxpayer’s adjusted gross income (AGI) computed without regard to any net operating loss carryback. Other changes to charitable contribution deductions and tax credits Deduction limits aren’t the only change to rules around charitable contributions. Here are additional noteworthy updates: 1. Reinstated tax deduction for non-itemizers The final bill reinstates the charitable contribution deduction for individual taxpayers who do not itemize (this reform was originally enacted by the Taxpayer Certainty and Disaster Tax Relief Act of 2020, but was limited to tax years 2020 and 2021). The new law reinstates the deduction and increases the limit. Taxpayers who do not itemize will be eligible for an above-the-line deduction of up to $1,000 for a single taxpayer and up to $2,000 for joint filers. There is no expiration date for this provision. Like the previous provision, donations to donor-advised funds and supporting organizations are not eligible for the deduction. 2. New tax credit for contributions to scholarship-granting organizations Individuals who make certain contributions to a scholarship-granting organization are eligible for this new tax credit. The credit is limited to $1,700, cannot be taken as both a deduction and a credit, and must be reduced by the amount of any credit taken on a state tax return. Unused credits can be carried forward for five years. For purposes of this credit, eligible students are individuals whose household income for the year prior to the scholarship application date is not greater than 300% of the area median gross income. States must voluntarily elect to participate in this program. To participate, the state must provide a list of scholarship-granting organizations that meet the requirements outlined above. Clean energy tax credits have been largely eliminated Clean energy credits and incentives were largely gutted by the OBBB. Most major clean energy credits expired in July 2026. Nonprofits that have relied on clean energy tax credits to make certain projects financially viable need to know that the calculations have just changed. If your organization does work that involves clean energy credits, you need to take another look at your plans right away. To learn more, please see this explainer on which credits are ending and how you can take advantage before they expire. Also important to know Here are some additional key changes in the new tax law: The threshold for certain information reporting (i.e., 1099s) will increase from $600 to $2,000 for payments made after December 31, 2025. The threshold will also be adjusted for inflation annually. In welcome news, the final version of the OBBB eliminated some of the worst provisions from previous drafts of the bill. For example, a tiered net investment income tax on private foundations was excluded, as were several provisions related to new unrelated business income items, such as transportation fringe benefits and certain research income. Other regulatory proposals that could impact nonprofits The OBBB is the most impactful legislation for nonprofits. But there are other regulatory changes to be aware of, including: Proposed Form 990 changes In April 2026, the Treasury announced plans to revise Form 990 for the first time in nearly two decades. The stated goal is to improve transparency, strengthen tax administration and increase oversight of tax-exempt organizations, particularly 501(c)(3)s that receive government funding or participate in fiscal sponsorships. If the proposed changes take effect, nonprofits will be required to report not only the receipt of government grants and contracts, but also how those funds are specifically used, adding a new layer of accountability and public transparency around government funding. Organizations that participate in fiscal sponsorship arrangements may face additional reporting requirements related to who controls sponsored projects, how funds are managed and how activities align with the sponsor’s exempt purpose. Increased scrutiny in this area reflects ongoing concerns about potential misuse of charitable funds and inadequate oversight of sponsored activities. IRS proposed nondiscrimination rules for private schools In September 2026, the Treasury and the IRS issued proposed regulations clarifying that private schools engaging in racial discrimination would not qualify for tax-exempt status under Section 501(c)(3). The proposal would update longstanding regulations to expressly state that schools that discriminate based on race, color, or national or ethnic origin in admissions and other educational policies would not be eligible for federal tax exemption. The proposal comes amid heightened federal scrutiny of diversity, equity and inclusion (DEI) initiatives and reflects the administration’s broader focus on ensuring that tax-exempt organizations comply with federal nondiscrimination policies. If finalized, the regulations would apply to taxable years beginning after May 31, 2027, and would primarily affect private educational institutions that rely on tax-exempt status and charitable contribution deductions. New IRS guidance changes group exemption requirements In early 2026, the IRS issued new rules governing group exemption letters for tax-exempt organizations. Group exemptions allow a central organization, such as a national nonprofit, religious denomination or trade association, to obtain and maintain tax-exempt recognition on behalf of affiliated subordinate organizations, relieving those entities from having to apply for recognition individually. The updated guidance establishes new requirements for obtaining and maintaining group exemption status, clarifies the relationship and oversight responsibilities between central organizations and their affiliates and provides more detailed reporting and compliance procedures. Organizations that rely on group exemptions should review the new rules to help ensure they continue to meet eligibility, supervision and recordkeeping requirements. Read more As nonprofit funding tightens again, can clearer insights help you make more of what you do have? Compensation strategies for nonprofits competing in tight labor markets The financial and operational benefits of nonprofit mergers and acquisitions
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What potential Form 990 changes could mean to tax-exempt organizations
Tax-exempt organizations may soon face increased reporting requirements on their annual Form 990 filing. On April 23, 2026, the U.S. Department of the Treasury announced plans to revise the Form 990. This would be the first major change to the form in nearly 20 years. The release cited several objectives, including improved transparency, strengthened tax administration and clearer reporting on certain activities. What organizations are most impacted by changes to Form 990 Organizations exempt from tax under Internal Revenue Code section 501(c)(3) would be the most impacted. Particularly those that: Receive government grants Have government contracts Participate in fiscal sponsorship arrangements What’s prompting Form 990 changes? Given the recent increased scrutiny around governmental funding (and ongoing scrutiny of tax-exempt organizations as a whole), it is no surprise that the reporting of governmental funding is on the list of revisions for Form 990. Currently, government grants are reported separately from other types of contributions, gifts and grants on the Form 990 Statement of Revenue. Grants that exceed certain thresholds may also be reported on Form 990 Schedule B (which is submitted to the IRS but is not open for public inspection). There is currently no requirement on Form 990 to show how specific governmental funds are spent. This is among the proposed changes to increase transparency and accountability related to governmental funding. It is worth noting that other government agencies require reporting on the use of government funds, such as the Office of Management and Budget’s Uniform Guidance rules. What are the impacts on fiscal sponsorship arrangements? Fiscal sponsorship arrangements are another area of concern noted by the Treasury Department. Tax-exempt organizations are often approached by individuals or groups who want to conduct a charitable activity but don’t have the means or long-term goals that warrant creating a new tax-exempt organization. Existing organizations may choose to sponsor these activities. While there are many well-intentioned individuals or groups seeking fiscal sponsorship arrangements (and well-intentioned tax-exempt organizations that agree to sponsor them), such arrangements can harbor fraud and abuse if the fiscal sponsor is not actively involved in the activity and the stewardship of the funds. Further, tax-exempt organizations may find themselves in situations where their conduct falls outside the purposes for which they were granted tax-exempt status, leading to myriad issues for the organization itself. Currently, there is no required reporting for fiscal sponsorship arrangements on Form 990. Proposed reporting changes would require disclosure of who is operating the project, who controls the funds and how the funds are used. No timeline was provided for these potential changes, but proposed regulations are expected to be published. A period for public comment will be available before the regulations are finalized. How should tax-exempt organizations prepare for Form 990 changes? Actions tax-exempt organizations can take to help ensure they are ready for these potential Form 990 revisions include: Review how government grants and contracts are tracked, so your organization can clearly demonstrate the source, purpose and use of public funds. Enhance internal reporting processes to support potential new disclosures on how specific government funds are spent and allocated across programs and activities. Evaluate fiscal sponsorship arrangements and maintain clear documentation identifying who operates sponsored projects, who controls project funds and how those funds are used. Confirm that organizational activities, funding practices and public disclosures are consistent with the organization’s exempt purpose and mission. Strengthen board oversight , internal controls and fund stewardship procedures to address heightened scrutiny around transparency, accountability and misuse of charitable assets. Assess whether current accounting and compliance systems can support the more detailed reporting requirements. Read more Compensation strategies for nonprofits competing in tight labor markets The financial and operational benefits of nonprofit mergers and acquisitions How nonprofits can implement a technology strategy designed for long-term growth
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What’s not going away: Energy tax credits and incentives that survived the OBBB
With the passage of the One Big Beautiful Bill (OBBB) Act, many energy-related tax incentives are being reduced or phased out entirely . That’s led to understandable confusion — and in some cases, hesitation — among schools , tribal governments , construction and real estate firms, and nonprofit entities that were considering energy efficiency projects. But here’s the good news: Not all incentives are going away . Several key programs remain in place, such as credits for geothermal and battery storage systems. Other credits have a significant off-ramp before they go away. Public and nonprofit entities can still leverage these programs to substantially lower their energy costs, improve their infrastructure and save money. The key now is to understand what incentives are still available — and how to pursue them. Here’s what you need to know: Energy production tax credits or incentives that are still available under the OBBB The OBBB sunsets wind and solar energy tax credits by the end of 2027 or 2030, with deadlines depending on when a project began construction. However, tax credits for geothermal energy projects and battery storage systems remain largely in place. Geothermal energy tax credits Geothermal energy systems remain fully eligible for clean energy tax credits under the Investment Tax Credit (ITC) or the Production Tax Credit (PTC), depending on the project size and structure. What’s the same: Projects can qualify for a 6% base credit through 2032, plus bonus credits for meeting prevailing wage, apprenticeship and other requirements. For most organizations, the maximum available credit is 50%-60%. Public and tax-exempt entities can claim energy incentives via direct pay, meaning they receive the full value as a cash payment from the IRS. The credit applies to both new construction and retrofits that install ground-source geothermal systems for heating and cooling. What’s changed: The 6% ITC will phase down after 2032. Filers will be able to claim a base credit of 5.2% in 2033 and 4.4% in 2034. The credit will sunset after 2034 (unless extended). Battery storage tax credits Standalone battery storage systems continue to qualify for the technology-neutral ITC. Battery storage systems can be installed on their own or in conjunction with renewable generation systems such as solar or geothermal. What’s the same: Battery storage qualifies for a 6% base credit through 2032, with bonus credits available for meeting prevailing wage, apprenticeship and other requirements. For most organizations, the max rate is around 50%, although it could be as high as 70%. For tax-exempt entities, the credit can be claimed via direct pay. Storage systems are eligible whether they’re installed with or without renewable generation, as long as they meet technical and operational requirements (e.g., at least 5 kWh of capacity for commercial installations). What changed: Material assistance restrictions start to apply in 2026, disqualifying projects that use battery components or receive support from designated foreign entities of concern (FEOCs). Because many battery components are currently manufactured overseas, it’s critical to work with vendors or contractors who can source U.S.-made systems — especially if projects start in or after 2026. The ITC for battery storage will phase down after 2032. Filers will be able to claim 75% of the full value in 2033 and 50% in 2034. The credit will sunset after 2034 (unless extended). Bonus credits for domestic content may be available, but eligibility depends on sourcing and manufacturing. Energy efficiency tax credits or incentives that are phasing out The OBBB largely eliminates tax incentives aimed at making buildings more energy efficient. But the new rules don’t kick in until July 1, 2026, so there is a small window left to still claim them. Section 179D: Energy-efficient commercial buildings tax deduction Section 179D allows a tax deduction for qualifying energy-efficient improvements to commercial buildings, such as interior lighting, HVAC systems and the building envelope. To claim the deduction, the building or system must be placed in service during the tax year in which the deduction is claimed. The OBBB sunsets 179D for construction that starts after June 30, 2026. But for now, organizations that move quickly can still take advantage of the credit : The deduction is $5.65 per square foot (as of 2025) and will increase to $5.94 in 2026. Public and nonprofit entities cannot claim the deduction directly, but they can allocate it to the design firm or contractor responsible for the qualifying systems. Section 45L: New Energy Efficient Home Credit Section 45L offers a per-unit tax credit for the construction of new energy-efficient homes, including single-family and multifamily dwellings. The credit applies to homes that are sold or leased as residences during the tax year in which the credit is claimed. The OBBB eliminates 45L for homes acquired after June 30, 2026, including leased apartment units. Under the law, “acquisition” requires not just construction but also possession by the end user, so residential owners or tenants must move in by this date. Until then: The credit remains available — up to $5,000 per unit for homes that meet Zero Energy Ready Home standards, and $2,500 per unit for Energy Star–qualified homes. The builder (or developer) claims the credit directly. Public entities typically partner with eligible developers to leverage the incentive. IRA eligibility restrictions still apply. To receive the full deduction, projects must meet prevailing wage and apprenticeship requirements. Domestic content rules do not apply to 179D. What we’re waiting to learn: new details on FEOC energy credits restrictions Additional restrictions around FEOCs were a major change introduced by the OBBB. Broadly, FEOC rules prohibit certain foreign entities that are designated as national security threats from claiming energy tax credits or incentives. The OBBB added new restrictions around FEOCs that go into effect in 2026, but exactly how they’ll be applied remains uncertain. The current statute bars credits for projects that receive material assistance from prohibited entities — but it’s unclear how far up the supply chain the rule goes. That uncertainty makes it difficult to evaluate risk for long-lead-time components, like batteries and inverters. Treasury guidance is expected, likely before the end of the calendar year. In the meantime, organizations should keep detailed records of procurement discussions and vendor sourcing decisions and flag high-risk components during early planning. Your legal counsel may suggest adding FEOC clauses to new contracts with vendors or subcontractors. How to move forward — and make the most of what’s left Claiming these incentives requires more than simply checking boxes. Organizations need to plan carefully, collaborate early and evaluate the broader value of energy investments. As you assess your next steps, remember: the old rules may still apply, depending on when construction began. 1. Don’t assume new rules automatically disqualify you Some incentives, like clean energy tax credits for wind and solar are still available as long as construction begins before July 5, 2026. Even if a wind or solar system is placed in service years from now (e.g., in 2028), it may still qualify under the older, more generous provisions. 2. Don’t assume you’re ineligible Schools and nonprofits often assume energy tax credits aren’t for them — especially now that incentives for solar projects are phasing out. But updates to the law have made direct pay, deduction allocation and public-sector eligibility more accessible. If you’re installing high-efficiency HVAC, building affordable housing or adding energy storage, you may still qualify. 3. Energy savings still matter, even without full credits In some cases, equipment sourcing or FEOC restrictions could make it harder to qualify for the full credit. That doesn’t mean the investment isn’t worthwhile. Take battery storage as an example. Even if a system doesn’t earn credits, it could generate enough electricity to store, which could help save on utility costs or meet peak demand. Energy-efficient systems could pay off in energy savings or resilience, even when credits don’t apply. 4. Act before phaseouts accelerate Geothermal and battery storage credits remain fully available through 2032 — but begin to phase down after that. Your best bet is to evaluate and prioritize energy projects now, before incentives diminish or disappear. 5. Start early, with the right team Incentives come with complex eligibility rules, labor requirements and technical thresholds. Engaging a team early in the process helps ensure everything is properly certified and documented — and filed and allocated in a timely manner. (Many incentives must be claimed on the original tax return.) To get it right, clean energy advisors, engineers, legal counsel and tax professionals should all be involved in early planning. Read more How public schools can still secure clean energy tax credits after the One Big Beautiful Bill Act The One Big Beautiful Bill is phasing out energy incentives, but there’s still time to act How the OBBB just changed R&D deductions under Section 174
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