Nonprofit Tax Alert: Final Tax Package Includes Several Provisions Impacting Tax-Exempt Organizations
On July 4, 2025, the President signed H.R. 1, known as “The One Big Beautiful Bill Act,” into law. As noted in GRF’s May 16 industry alert, this legislation contains many provisions pertaining to tax-exempt organizations. Outlined below are the key changes for tax-exempt organizations and the provisions from previous drafts removed from the final bill.
Unless otherwise noted, these changes are effective for tax years beginning after December 31, 2025.
Key Changes for Tax-Exempt Organizations
- Increase in the IRC section 4968 excise tax on colleges and universities, depending on the overall size of the “student adjusted endowment” (i.e., investment assets per student), as follows:
This tax will apply to colleges and universities with at least 3,000 tuition-paying students, where at least 50% of the tuition-paying students are located in the United States, and which are not state colleges or universities.
- Expanded application of the IRC section 4960 excise tax, to include all employees and former employees of an applicable tax-exempt organization (“ATEO”), instead of just for an ATEO’s top 5 highest-paid employees for a given tax year. Section 4960 will continue to apply for individuals who were employees of an ATEO during taxable years beginning after December 31, 2016.
- Accelerated phaseout period for many clean energy credits.
Key Changes to Charitable Giving Provisions
Corporations
- Corporations can now only deduct their total charitable contributions to the extent that they exceed 1% of taxable income for the tax year. This new 1% “floor” is in addition to the existing 10% “ceiling” on charitable contributions made by corporations.
Individuals
- Individuals who do not itemize deductions can now claim an additional deduction up to $1,000 ($2,000 for joint filers) for charitable contributions made during the tax year.
- Individuals who itemize deductions can now only deduct their total charitable contributions to the extent that they exceed 0.5% of adjusted gross income (“AGI”) for the tax year.
- Permanent extension of the 60%-of-AGI contribution limitation, for cash gifts contributed to qualifying public charities, for individuals who itemize their deductions.
- A new nonrefundable federal tax credit of up to $1,700 per year, for donations made by US individuals to qualifying scholarship granting organizations. This provision is effective for tax years beginning after December 31, 2026.
Notable Omissions
The following provisions appeared in previous versions of the bill but were excluded from the final version of the new legislation.
- Reintroduction of the previously repealed IRC section 512(a)(7) “parking tax,” which treated certain employer-provided transportation fringe benefits, such as transit passes and parking, as unrelated business income (“UBI”).
- Expansion of IRC sections 512 and 513, to include royalties from any sale or licensing of a tax-exempt organization’s name or logo as UBI.
- Modification of the IRC section 512(b)(9) research exclusion from UBI, to apply only to income derived from fundamental research made freely available to the general public.
- Increased IRC section 4940 tax rate on net investment income of private foundations, from 1.39% to as high as 10%, depending on the size of the foundation’s assets.
- Expansion of IRC section 501(p), granting the Secretary of the Treasury authority to suspend the tax-exempt status of any organization that provided more than a minor amount of material support or resources to a listed terrorist or terrorist-supporting organization.
Conclusion
The IRS will now be implementing this major tax legislation, and it is expected to provide additional information and guidance to taxpayers, organizations, and practitioners as it becomes available. GRF will continue to monitor these developments and will provide updates as they arise. For more information on OBBB’s provisions and implications for individuals and businesses, click here.
Please contact your tax professional or reach out to the GRF Tax Team if you have questions about how the newly enacted legislation may impact you or your business.
Contact
If you have questions about the “One Big Beautiful Bill” (OBBB) Act, contact us.
