What the One Big Beautiful Bill Act (OBBBA) Means for Nonprofits: Key Tax Changes and How to Prepare

The One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025, brings sweeping tax changes that will touch nearly every corner of the nonprofit sector. While there are a few bright spots, much of the legislation introduces new costs, tighter rules, and more reporting requirements.

The takeaway? Start planning now. Most provisions kick in for tax years beginning after December 31, 2025, and the earlier you adapt, the smoother the transition will be.

Here’s what you need to know—and how your organization can respond.

1. Charitable Contribution Rules Are Getting Stricter

• Corporate Giving. Businesses can now only deduct charitable contributions if they exceed 1% of taxable income, up to the existing 10% cap.
• Individual Giving. Individuals must clear a 0.5% AGI floor before deductions count, and the value of deductions is capped so they only offset income taxed at 35%, even for those in the top bracket.
• Non-Itemizer Deduction Returns. Non-itemizers can once again deduct up to $2,000 (married) or $1,000 (single) for eligible cash gifts.

Your Next Move:
Review your fundraising approach. You may need to adjust messaging, emphasize the ongoing benefits of structured giving (such as donor-advised funds), and connect donors to tax-smart ways to give under the new rules.

2. New Scholarship Credit Could Boost Education Funding

A new federal credit rewards individuals who give to qualifying scholarship-granting organizations, with a cap of $1,700 per year.

Your Next Move:
If you’re in the education space, consider forming—or partnering with—such an organization to tap into this new donor incentive.

3. Higher Excise Taxes on Compensation and Endowments

• Section 4960 – Compensation
  The $1 million excise tax now applies to all current and former employees—not just the top five.
• Section 4968 – Endowments
  The old flat 1.4% rate is gone. Endowment income could now be taxed up to 8% for high-value, per-student endowments.

Your Next Move:
Audit your compensation packages and endowment structure. Look at ways to reduce exposure—whether that’s through benefit design, payout planning, or targeted spending.

4. Employee Retention Credit (ERC) Changes

Refund claims after January 31, 2024 are no longer allowed, and ERC audits now have a six-year window.

Your Next Move:
If you’ve claimed ERC in the past, ensure your records are airtight.

5. SALT Deduction Cap Temporarily Increased

The cap on state and local tax deductions jumps to $40,000 in 2025 for married couples, with a phaseout for high earners.

Your Next Move:
While this is an indirect change, it could influence donors’ year-end giving strategies—something to keep in mind for campaign timing.

6. Narrower Energy Incentives

Nonprofits can still use “direct pay” clean energy credits, but many energy-related tax benefits will sunset or phase out starting mid-2026.

Your Next Move:
If energy upgrades are on your to-do list, act quickly to lock in today’s more favorable incentives.

Action Plan for Nonprofits

• Run the Numbers: Model how these changes will affect your funding, operations, and compliance costs.
• Educate Your Donors: Proactively explain how the new rules change their giving options—and offer solutions.
• Move Quickly on Energy Projects: Some deadlines are less than two years away.
• Get Expert Guidance: These changes are complex. Partner with a CPA or advisor who understands the nonprofit landscape.

Bottom Line

The OBBBA reshapes the tax environment for nonprofits. While the changes bring challenges, early planning—especially around fundraising strategy, executive compensation, and capital projects—can help you protect your mission and keep your organization thriving.