On July 4, 2025, President Trump signed into law what’s been informally dubbed the “One Big Beautiful Bill”—a sweeping tax and policy package passed via budget reconciliation. While much of the press coverage has focused on the bill’s political implications and tax cuts, the nonprofit sector is left sorting through the real-world impact. Spoiler alert: It’s a mixed bag.Here’s what you need to know.
Nonprofits with Highly Compensated Employees, Beware
The 21% excise tax on nonprofit executive compensation above $1 million, originally introduced in the 2017 Tax Cuts and Jobs Act (TCJA), just got a lot more expansive. Previously, it applied only to the top five highest-compensated employees. Under the new law, the tax applies to any current or former employee who exceeds the threshold. This includes severance (“excess parachute payments”) and may catch more employees than you think—particularly in health systems, universities, and other large nonprofits that compete with the private sector for talent.
The medical services exception survives, but nonprofit boards will need to review all high-level compensation arrangements immediately to understand exposure and consider mitigation strategies.
The Return of the Parking Tax
Yes, it’s back. Nonprofits must once again treat qualified transportation benefits—such as employee parking—as unrelated business taxable income (UBTI). This provision was widely panned for its complexity and was repealed in 2019, but it’s been resurrected. Nonprofits will now need to account for these benefits as taxable income, complicating payroll and increasing tax compliance burdens.
Private Foundations: No New Excise Hikes (For Now)Despite early drafts proposing a 10% excise tax on large private foundations and tweaks to the excess business holdings rules, the final law left these provisions out. The 1.39% tax on net investment income remains unchanged, and existing excess business holding rules stay intact. That’s a bullet dodged—for now.
A New Floor for Corporate GivingA surprising and potentially devastating provision creates a 1% floor for corporate charitable deductions. That means corporations must give at least 1% of their taxable income before any charitable contributions become deductible. The 10% ceiling still applies, but the new floor could result in a net disincentive for corporate giving. Early estimates suggest annual charitable contributions by corporations may drop by as much as $4.5 billion.
Charitable Deduction Changes for Individuals
Several provisions affect individual giving:
For itemizers: High-income taxpayers will now only receive a maximum benefit of $0.35 per $1 of deductions (down from $0.37), and a 0.5% floor has been added. That means itemizers must give more than 0.5% of their AGI before they can deduct anything. On the plus side, the ability to deduct up to 60% of AGI for cash gifts is now permanent.
For non-itemizers: A universal charitable deduction is now permanent—$1,000 for individuals, $2,000 for joint filers. However, donations to donor-advised funds don’t qualify.
These changes may shift donor behavior, but we’re unlikely to know the full impact until tax season. The floor for itemizers could discourage giving from wealthier households, even as the non-itemizer deduction offers broader access to a limited benefit.Scholarship Credit for K–12 Donations
A new, targeted provision gives donors a tax credit—up to $1,700—for gifts to 501(c)(3) scholarship-granting organizations focused on elementary and secondary schools. While limited in scope, this provision could redirect giving away from general-purpose charities and toward educational tax credit organizations.
Higher Education and Health Systems in the Crosshairs
Private colleges and universities with large endowments face a new tiered excise tax structure—up to 8% on investment income for the wealthiest institutions. This may create ripple effects across affiliated nonprofits, particularly academic medical centers, as institutions look to renegotiate revenue-sharing and funds flow agreements.Nonprofit hospitals and health systems are also hit hard. The expanded compensation excise tax and parking tax will increase costs, while Medicaid and Marketplace changes may result in millions more uninsured Americans—raising demand for charity care without increasing reimbursement.
What Didn’t Make It In
Notably, the final bill did not:
Expand the excise tax on private foundation net investment incomeChange the excess business holdings rulesAdd UBTI treatment for name and logo licensing revenue (a threat in earlier drafts)
Review executive compensation arrangementsAdjust accounting systems for the parking taxEducate your donors about the new floors and limitsMonitor state-level impacts, especially in healthcare and education
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on federal tax and fundraising regulations nationwide. Ellis also advises donors concerning major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.