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 regulator 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.

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