One Big Beautiful Bill Up Close: Tax Impact for Not-for-Profits

The One Big Beautiful Bill Act (OBBBA) affects a majority of taxpayers, including not-for-profits and particularly large private colleges and universities. Below highlights some of this sector’s key provisions to discuss with your tax advisers.

Excise Tax Expanded Related to Excess Compensation

• The excise tax impacts excess compensation for all current and former employees earning over $1 million.

>> Our Take: The newly enacted legislation expanded the definition of “covered employee” as anyone (including former employees) earning more than $1 million annually from a tax-exempt organization. Nonprofits with highly compensated executives should reevaluate compensation structures to manage potential tax exposure on the excess portion (excise tax at 21% rate).

Tiered “Endowment Tax” Created for Private Colleges and Universities

• Imposes a tiered excise tax on net investment income (NII) based on student-adjusted endowment and applying to institutions with more than 3,000 tuition-paying students.
• Effective for tax years beginning after December 31, 2025.

>> Our Take: Large universities must model and budget for these new rates for tax impact and adjust their investment/distribution plans accordingly.

Foundation Excise Tax or UBTI Rules Unchanged

• Private foundation excise tax remains a flat 1.39%; no tiered structure was enacted.
• UBTI exclusions for parking/transit benefits and name/logo royalties remain unchanged.

>> Our Take: During the reconciliation process, the first version of the House bill that passed included a tiered structure of the excise tax, similar to large colleges and universities. Ultimately the tiered structure was dropped from the final version, and hence does not levy additional excise tax on private foundations. The sale or licensing of a name or logo along with qualified transportation fringe benefits were initially considered to be unrelated business taxable income (UBTI), but were removed from the final bill as well. These provisions not making it into the final Act means nonprofits can use these financial resources to continue their mission.

Charitable Giving Deduction Incentives Added

• 1% floor on corporate charitable deductions; excess can be carried forward five years.
• Permanent standard deduction boost: Non-itemizers can deduct up to $1,000 (single) or $2,000 (married).
• Itemized deductions, including charitable giving, are capped at approximately 35% of the value for high-income filers.
  • Nonprofits can highlight these changes in campaigns and communications!

>> Our Take: Nonprofits might need to use planning and additional resources to highlight the recent tax law changes around giving to inform donors or risk shrinking the pool of small and large donors.

Changes Made to Important Tax Credit Programs

Low-Income Housing Tax Credit (LIHTC)

• Lowers bond-financing threshold from 50% of land and building costs to 25%.
• Permanent 12% increase in the 9% allocations for LIHTC beginning in 2026.

Qualified Opportunity Zones (QOZs)

• Made permanent, with new QOZs established every 10 years.
• Stricter criteria for qualifications.

New Market Tax Credits (NMTC)

• Receives a permanent extension through the OBBBA, with $5 billion in annual allocation authority.

>> Our Take: The changes to these programs support nonprofit development and investment strategies. Read more on these tax credit programs in “One Big Beautiful Bill Up Close: Tax Impact for Real Estate.”

Work with your not-for-profit tax advisers on the specific impact the OBBBA could have on your organization’s financial situation.

Read our related blogs below or visit our OBBBA Resource Center for the latest updates:

>> "One Big Beautiful Bill Up Close: Tax Impact for High-Net-Worth Individuals"

>> "One Big Beautiful Bill Up Close: Tax Impact for Private Companies"

>> "One Big Beautiful Bill Up Close: Tax Impact for Private Equity and Registered Funds"

Contact Pargat Singh, Marie Brilmyer or a member of your service team to discuss this topic further.

In this blog Cohen & Co is not rendering legal, accounting, investment, tax or other professional advice. Rather, the information contained in this blog is for general informational purposes only. Any decisions or actions based on the general information contained in this blog should be made or taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.