Congress recently passed the One Big, Beautiful Bill Act (OBBBA) — a large and complex piece of legislation that may affect nonprofits in a variety of ways. From financial reporting changes to shifts in funding, here’s what your organization needs to know.
Tax Provisions Impact Donors
OBBBA revamps the tax effects of charitable giving, altering the financial equation for donors.
Some changes are positive:
- There is now an “Above the line” tax deduction of up to $1,000 ($2,000 if married filing jointly) for donations from individual taxpayers who claim the standard deduction. This could spur small donations, but it comes with a caveat — the deduction isn’t available for contributions to donor-advised funds, which are increasingly popular vehicles for charitable giving.
- Another new tax credit worth up to $1,700 targets donors who give to qualified scholarship-granting organizations for support of students in grades K-12.
Unfortunately, the bill includes several changes that could make charitable giving less financially advantageous for some donors:
- Donors who itemize can only claim a deduction for giving above 0.5% of their adjusted gross income (AGI), with deductions capped at 60% of AGI. Carryforwards are allowed, but only for gifts that meet the 0.5% threshold.
- Donors in the 37% tax bracket can deduct only up to roughly 35% of the value of their gifts (meaning they lose 2/37th of their tax deduction if in the top income tax bracket).
- Corporations can only deduct charitable donations that exceed 1% of the company’s taxable income (deductions still capped at 10% of corporate taxable income).
Nonprofit leaders should assess their current donor base to determine the relative impact these changes may create and possibly plan for alternative giving/timing strategies that may be employed by their donor base. Consider reaching out to larger individual and corporate donors to help them structure gifts that deliver maximum tax benefit in future years and encourage giving before the end of 2025 to take advantage of current rules. It may also be wise to tweak your approach to fundraising in response to the new tax math for charitable giving.
Employers Face Expanded Tax Obligations and Changes to Benefits
In addition to anticipating a potential drop in donations, nonprofits should prepare for changes that affect their role as an employer. OBBBA changes include expanded taxes on executive compensation: Beginning in 2026, the existing 21% excise tax on employee compensation above $1,000,000 will apply to all employees and former employees.
Fringe benefits are another area that got significant updates in OBBBA:
- The bill eliminates the tax deduction for reimbursing employee expenses related to commuting by bicycle or moving.
- Non-church nonprofits must recognize parking and other transportation fringe benefits as unrelated business taxable income (UBTI). However, employees can still exclude a limited amount of these benefits from gross income.
- More employees are now eligible for a health savings account (HSA), including those who participate in direct primary care (DPC) arrangements.
- No-deductible telehealth benefits in a High Deductible Health Plan (HDHP) won’t affect employees’ eligibility to make HSA contributions.
- Annual limits on contributions to a flexible spending account (FSA) for dependent care rise to $7,500.
- The federal tax credit for Paid Family and Medical Leave becomes permanent under OBBBA, as does tax-free student loan repayment assistance for employees.
- The exclusion for educational assistance benefits (including student loan repayment assistance) will now be indexed for inflation.
Employers who want to offer more fringe benefits may consider making a contribution of up to $2,500 to the new “Trump accounts” for employees with (minor) children. Contributions won’t be counted as income for parents or children, nor will they generate a deduction for parents or employers. Similar to a 401(k) account, these tax-advantaged savings accounts for children can be used to cover certain eligible expenses when the child reaches the age of 18. The accumulated savings can also help fund a new business or the purchase of a first home
Federal Funding Cuts Spur Demand for Nonprofit Services and Support
As nonprofits continue to navigate a changing financial and regulatory landscape, OBBBA introduces funding adjustments that could influence community access to essential services. Organizations serving low-income populations may see increased demand as a result. To respond effectively, it’s important to optimize fundraising, strengthen operations, and focus on program impact.
The nonprofit specialists at Mauldin & Jenkins are here to help you navigate these changes with clarity and confidence, offering guidance tailored to your mission, operations, and community goals. Connect with us to explore strategies that strengthen your impact and support long-term sustainability.
