The One Big Beautiful Bill Act: Key Provisions Affecting Nonprofit Organizations
The One Big Beautiful Bill Act (H.R. 1) introduces significant changes to the tax code that will have notable effects on nonprofit corporations and charitable giving. While the legislation includes provisions designed to encourage individual charitable contributions, it also imposes new restrictions and taxes that may challenge nonprofit organizations’ operations and fundraising efforts and corporate donors.
Key Provisions Affecting Nonprofits
Universal Charitable Deduction For Non-Itemizers Effective on January 1, 2026, the bill establishes a permanent above-the-line tax deduction for charitable contributions. This provision allows taxpayers who don’t itemize deductions to still claim charitable contributions, potentially expanding the donor base for nonprofit organizations. Beginning in 2026, H.R.1 reinstates the charitable deduction for non-itemizers and increases the deduction limit to $1,000 for single filers and $2,000 for married couples filing jointly. Unlike previous temporary versions of this deduction, this law doesn’t sunset (Section 70424 of H.R.1).
Individual Giving Requirements Starting in 2026, individuals who itemize their deductions will only be able to deduct charitable contributions that exceed 0.5 percent of their adjusted gross income. This means that for a taxpayer with $200,000 in adjusted gross income, the first $1,000 in charitable contributions will provide no tax benefit. The section operates within the existing framework where charitable contribution deductions generally can’t exceed 60% of your AGI, which is the current law’s upper limit for cash contributions to most qualified organizations. Together, these provisions create a narrow band where charitable deductions are allowed – only contributions between 0.5% and 60% of Adjusted Gross Income would be deductible (Section 70425 of H.R.1).
New Corporate Giving Requirements H.R.1 introduces a new 1 percent floor on deductibility of charitable donations made by corporations. Effective for tax years beginning in 2026, donations by corporations will be deductible only to the extent that they exceed 1 percent of the corporation’s taxable income. The 10 percent cap on corporate charitable contribution deductions remains unchanged, creating a deductibility window for corporations, permitting deductions for donations that exceed 1 percent, but do not exceed 10 percent, of a corporation’s taxable income. This new minimum threshold may discourage charitable giving, particularly among smaller corporations that historically contribute less than 1% of their income (Section 70426 of H.R.1).
Scholarship-Granting Organization Tax Credits The bill establishes a new federal tax credit program that benefits certain educational nonprofits. Taxpayers can claim a nonrefundable federal tax credit of up to $1,700 for donations to qualified scholarship-granting organizations (SGOs) that provide scholarships to eligible students solely within the state in which the organization is listed as a qualifying SGO. To qualify as a SGO, an organization must be tax-exempt under Section 501(c)(3) as determined by the IRS, and it must spend at least 90 percent of its income on scholarships. The organization must also provide at least 10 scholarships to elementary or secondary school students who don’t all attend the same school. Private foundations do not qualify even if they are determined by the IRS to be tax exempt under Section 501(c)(3). Scholarships must benefit students from households with incomes not exceeding 300% of their area’s median gross income, and these scholarships will not count as taxable income to recipients. This credit, taken instead of a charitable contribution deduction, is only available for SGOs operating in states that opt into the program. States will be able to opt into this program by submitting a list of qualifying SGOs to the Treasury Department each year it wants to participate, but the deadlines and procedures for opting into this program won’t become clear until the regulations are released. The program is set to begin in 2027 (Section 70411 of H.R.1).
Expanded Executive Compensation Excise Tax The bill expands the existing excise tax on excess compensation paid to employees of applicable tax-exempt organizations including nonprofits. Rather than only applying to the five highest-compensated employees, the tax will now apply to all employees of the organization whose annual salary is in excess of $1,000,000. This change will apply to taxable years beginning after December 31, 2025 (Section 70416 of H.R.1).
Implementation Timeline and Next Steps
Most of the Act’s charitable giving provisions take effect in 2026, with the scholarship-granting organization tax credits beginning in 2027. This timeline provides nonprofits with valuable but limited time to adjust their strategies and educate their supporters about the changes.