It’s not just attorneys and CPAs that are keeping a watchful eye on the One Big Beautiful Bill Act. This new legislation introduces changes that will impact tax-exempt organizations and charitable giving, making it a pivotal topic for donors, nonprofits, and the entire philanthropic sector. During these uncertain times, there’s no one closer to the action (and no one better to ask) than our Chief Legal Officer Jeffrey Haskell. As you’re advising charitable clients and exempt entities, understanding these shifts is critical to guiding them through this complex landscape. While the long-term effects are still unclear, the bill’s complexity underscores the need for proactive planning to sustain the charitable sector’s vitality.
Here are some of the bill’s practical implications for the charitable sector.
#1: Expanded Excise Tax on High Compensation. The bill amends Internal Revenue Code (IRC) Section 4960, expanding the 21% excise tax on compensation exceeding $1 million. Previously, under the 2017 Tax Cuts and Jobs Act, this tax applied only to the five highest-compensated employees of a tax-exempt organization, current or former, with liability allocated proportionally among the exempt entity and related organizations via Form 4720. Starting in 2026, the tax will cover all employees—current or former—of the tax-exempt organization earning over $1 million who were employees during any taxable year beginning after December 31, 2016. This means that tax-exempt organizations must now review compensation records from 2017 and onward to identify any current or former employees paid over $1 million, even if they weren’t among the top five earners in such past years.
For example, a retired executive receiving a $1.2 million deferred payout from a related for-profit subsidiary would trigger the tax, with the subsidiary liable for its share on the $200,000 excess. This broader scope could increase compliance costs and push nonprofits to restructure compensation to avoid tax liability. Advisors should review compensation agreements and related-entity structures to mitigate exposure.
#2: Charitable Deduction Changes. The bill reshapes charitable deductions for individuals and corporations. For individuals, it establishes a permanent above-the-line deduction for non-itemizers, capped at $1,000 ($2,000 for joint filers), encouraging modest giving among the roughly 90% of filers who don’t itemize.
For itemizers, a new 0.5% floor on adjusted gross income (AGI) applies, meaning only contributions exceeding this threshold are deductible. Carryforwards are also allowed only if this 0.5% floor is met.
The 60% AGI limit for cash contributions to public charities is made permanent, preserving incentives for larger donations. However, the tax benefit for itemized deductions is capped at 35 cents per dollar, down from 37 cents for top-bracket taxpayers, slightly reducing high-earner incentives.
For corporations, a 1% floor on taxable income is imposed, so only contributions exceeding this threshold are deductible, up to the existing 10% limit. Independent Sector estimates this could reduce corporate charitable giving by approximately $4.5 billion annually, straining nonprofit budgets, particularly for smaller organizations.
A new nonrefundable tax credit of up to $1,700, starting in 2027, applies to donations to organizations granting scholarships to private or religious K-12 schools, potentially diverting funds from broader charitable causes.
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