By Angela Crawford, Director, and Emilie Knieriem, Senior Manager at Blue & Co.
On May 22nd, the House narrowly passed the “One Big Beautiful Bill Act” (H.R. 1). This bill covers a wide range of government programs and policies. While there are wide-ranging impacts in the bill, including employer-related changes, this article will focus on the proposed amendments to the Internal Revenue Code specific to not-for-profit organizations.
First, the good news: individuals who do not itemize can again take a charitable deduction on their returns. For cash contributions from 2025 through 2028, married joint filers may deduct up to $300, and all other filers may deduct up to $150. However, itemized deductions for high-income individuals would be limited under this bill, reducing the tax benefit from their charitable contributions for the year. The corporate contribution deduction continues to be affected by taxable income, and this proposal adds a one percent floor to the 10 percent ceiling in effect now. Contributions must exceed one percent of taxable income before they are deductible, and any deductions limited by the one percent floor or 10 percent ceiling may be carried over to a subsequent year.
While changes to the charitable contribution deduction may indirectly affect not-for-profits, four key items in the bill’s “Make America Win Again” subtitle directly impact not-for-profits.
Private foundations currently pay a flat 1.39 percent excise tax on net investment income. Under the bill, the flat tax rate is replaced by a tiered tax rate based on the value of the private foundation’s assets.
The Tax Cuts and Jobs Act (“TCJA”) imposed a 1.4 percent excise tax on certain private colleges and universities’ net investment income. This bill modifies the excise tax to apply a tiered tax rate system based on a student adjusted endowment value. Student adjusted endowment is the total value of an institution’s investment assets, divided by the number of eligible students.
The TCJA also imposed a 21 percent excise tax on excess compensation paid to “covered employees.” The bill expands the definition of “covered employee” to include all current and former employees of the tax-exempt organization. Under current law, “covered employees” include only the top five highest-compensated employees of the organization in the current year and prior years.
TCJA implemented a short-lived provision commonly referred to as the “parking tax.” The bill resurrects the rule requiring tax-exempt entities to increase their unrelated business income by any amount which is paid or incurred for qualified transportation and parking fringe benefits. For information on how this proposal could be applied, please refer to our article about the TCJA rule here.
The bill passed the House on May 22nd and is moving through the Senate now. All items above are proposed provisions and can change significantly before the bill heads to the President. The GOP is eyeing a July 4th deadline to pass the bill, so we could see key developments in the next couple weeks.
Keep an eye out for our next article, where we’ll break down the latest updates and what they mean for your organization.
Contact your Blue & Co. Advisor if you have any questions.
