On July 4, 2025, President Trump signed the One Big, Beautiful Bill (OBBB) into law. This sweeping bill includes numerous tax changes that impact many, including nonprofit organizations. Because numerous changes in the bill affect nonprofits, organizations should review their potential impact now for both challenges and opportunities, and plan accordingly.
Here, we highlight several that have the potential to impact many of our readers. For those who would like a more in-depth analysis, BDO USA offers a comprehensive article on the topic.
Excise Tax on “Excess” Compensation
Section 4960 in the OBBB expanded those included in the limits of excess compensation. In the past, this was limited to the top five executives in the current or the five prior years. Now, according to the new bill, all employees and former employees are subject to Section 4960. The bill applies only to employees of the organization who were employed on December 31, 2016. It begins with the tax year starting December 31, 2025.
Employee Retention Credit Changes
The OBBB makes several changes to employee retention credits. The bill extends the statute of limitations for ERC claims to six years. It increases penalties on preparers and promoters and bars refunds after the date of enactment for claims filed after January 31, 2024.
Charitable Contributions Deductions
Section 170(b)(2)(A) has been extended in the OBBB to allow corporations to claim a charitable contribution deduction only if it exceeds 1% of taxable income (up to the current 10% cap). Corporations may carry excess contributions, as well as contributions disallowed by the 1% floor, for up to five years. According to BDO, “… if the aggregate corporate charitable contributions do not exceed 10% of taxable income, there will be no carryforward of charitable contributions disallowed due to the 1% floor.”
60% Limitation on Individual Charitable Giving Now Permanent
Another change impacting nonprofits is in individual charitable giving. The current 60% deduction limitation of AGI is now permanent for charitable contributions of cash made by individuals to public charities (as well as certain private foundations as defined in Section 170(b)(1) (F)). These changes appear to allow individuals to deduct up to 60% of AGI even if they make total cash contributions to public charities that are less than 60% of AGI. It also looks as if they can use this deduction if they make charitable contributions of noncash property to eligible ones that are not public charities.
Nonitemized Deduction Amount Increased
Another bit of good news for nonprofits is that the amount of non-itemized charitable deductions individuals can take has been increased to $2,000. The OBBB permanently reinstates the partial deduction for charitable contributions made by individuals who don’t itemize deductions on their tax returns. For people who are married and filing jointly, the amount is now $2,000. For all others, it is $1,000. This doesn’t include non-cash contributions, and it is only available for cash contributions made to certain charities. These changes are effective for the tax year starting after December 31, 2025.
Action Steps for Nonprofits
Clearly, there are many other changes in the OBBB that impact nonprofits. But these are the ones that impact most nonprofits.
This is a good time to revisit your organization’s strategic plans and determine how to adjust your approach considering the changes. For example, the increase in non-itemized donation amounts may encourage higher than average donations among certain donors. Do you have a donor plan ready to go for 2026? How can you maximize charitable giving and encourage more donations in light of the increased deduction amount?
Another area that has the potential for significant impact is among nonprofits that pay more than $1 million to more than five individuals or provide certain severance packages. Now is the time to work with your human resources personnel to review compensation considering the OBBB changes.
The new year is almost upon us, and with it, many changes like these will impact finances, marketing, human resources, and more. Take the time now to review, reflect, and consider how your organization can leverage them for benefit or minimize negative impacts.
Welter Consulting
Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.
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