How the OBBB Impacts Nonprofit Organizations

July 22, 2025

As you have heard, on July 4, 2025, President Trump signed into law the One, Big, Beautiful Bill (OBBB), a sweeping piece of legislation with significant implications for the nonprofit sector. While the bill covers a wide range of tax and financial provisions, several key changes stand out for not-for-profit organizations and their donors. Here’s what you need to know to prepare for 2026 and beyond.

1. Expanded Excise Tax on Excess Compensation

Since 2018, nonprofits have been subject to a 21% excise tax on compensation exceeding $1 million paid to their five highest-paid employees. The OBBB dramatically expands this rule. Starting in 2026, any employee earning over $1 million could trigger the excise tax—regardless of their rank or role.

This change is expected to affect primarily large nonprofits, but it’s a wake-up call for all organizations to review compensation policies and ensure compliance before the new rules take effect.

2. New Charitable Deduction Rules for Donors

The OBBB introduces both opportunities and limitations for charitable giving:

• Nonitemizers (those who take the standard deduction) will now be able to deduct up to $1,000 in cash donations ($2,000 for joint filers) to qualified charities. This is a major shift, as nonitemizers previously received no deduction for charitable contributions.
• Itemizers, however, will face a new hurdle. While the 60% of adjusted gross income (AGI) ceiling for cash donations remains, a new floor of 0.5% of AGI means that only contributions exceeding this threshold will be deductible. For example, someone with a $100,000 AGI must donate more than $500 before deductions kick in.
• Corporations will also see changes. A 1% of taxable income floor will apply to corporate charitable deductions, though disallowed amounts can be carried forward for up to five years.

These changes are likely to reshape donor behavior, especially among those who previously gave smaller amounts or relied on itemized deductions.

3. Estate and Gift Tax Implications

Another provision of the OBBB makes permanent the high lifetime gift and estate tax exemption, which was set to expire after 2025. The exemption will be $15 million in 2026, adjusted annually for inflation. While not directly tied to charitable deductions, this change may reduce the incentive for wealthy individuals to make large charitable gifts as part of estate planning.

4. Additional Tax Impacts for Specific Nonprofits

Certain types of nonprofits, particularly private colleges and universities—will face additional scrutiny. The OBBB raises the excise tax on institutions with net investment income exceeding $750,000 per student. Organizations in this category should consult with tax professionals to understand the full scope of financial repercussions.

Final Thoughts

The OBBB brings a mix of new opportunities and challenges for nonprofits. While expanded deductions for nonitemizers may encourage broader giving, the new floors and expanded excise taxes could complicate financial planning for both organizations and donors.

Nonprofits should begin preparing now by:

• Reviewing executive compensation structures.
• Updating donor communications to reflect new deduction rules.
• Consulting with Lumsden McCormick to understand specific impacts.