Provisions of the One Big Beautiful Bill Act Impacting Tax-Exempt Organizations by Adam Cohen, CPA
Posted on September 09, 2025
by
Adam Cohen
The July 4, 2025, enactment of the One Big Beautiful Bill Act (OBBBA) amends the tax code and its impact on not-for-profit entities. These include changes to charitable deductions and an extension of excise taxes on highly compensated employees and net investment income for private colleges and universities.
Charitable Deductions
The OBBBA retains charitable deductions made by taxpayers who itemize their deductions on their tax returns. The amount of the deduction for cash gifts to public charities is set permanently at 60 percent of the taxpayer’s adjusted gross income (AGI), whereas gifts of appreciated assets remain at 30 percent of AGI. However, for taxable years beginning after December 31, 2025, the deduction is allowable only to the extent that the taxpayer’s aggregate contributions exceed 0.5 percent of their contribution base, which is the taxpayer’s adjusted gross income (AGI) computed without regard to any net operating loss carryback for the year. Amounts disallowed may be carried forward for up to five years. For corporate taxpayers, a charitable deduction applies only when aggregate contributions exceed 1 percent of the entity’s taxable income. The existing 10 percent ceiling on corporate charitable deductions remains.
The law also introduced a permanent above-the-line deduction of up to $1,000, effective after December 31, 2026, for philanthropic taxpayers who claim the standard deduction. For married taxpayers filing joint tax returns, the maximum charitable deduction is $2,000.
Excise Tax on Employee Compensation
Under current law, nonprofits are required to pay a 21 percent excise tax on compensation exceeding $1 million earned by their “five highest compensated employees”. The OBBBA extends the tax to apply to all a nonprofit’s employees earning more than $1 million. This change is retroactive to tax years beginning after Dec. 31. 2016, which will require nonprofits to look back at former employees to determine whether they have an outstanding tax liability for the compensation paid to those individuals,
Excise Tax on Private Colleges and Universities
The OBBA revises and expands the 1.4 percent excise tax on the net investment income of private colleges and universities with a new rate structure based on the institutions’ student-adjusted endowments. For example, beginning in 2026, a 1.4 percent tax on net investment income applies to institutions with an endowment of between $500,000 and $750,000. The rate increases to 4 percent for endowments of $750,000 to $2 million and 8 percent for those exceeding $2 million. The law carves out an exemption for colleges with less than 3,000 tuition-paying students.
About the Author: Adam Cohen, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where he works with closely held businesses and non-profit charities, hospitals and family foundations to maintain tax efficiency while complying with federal and state regulations. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or info@bpbcpa.com.
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