What the Big Beautiful Bill Means for Tax-Exempt Organizations

By Sam A. Lazzara, CPA and James K. O’Connor, CPA

The “Big Beautiful Bill” (H.R. 1)—officially known as the Tax Relief for American Families and Workers Act of 2025—delivers sweeping changes to the U.S. tax code, and tax-exempt organizations aren’t left out of the conversation. While much of the spotlight has focused on small business incentives and payroll-related shifts, several key provisions could impact nonprofits, foundations, and other charitable entities.

From expanded excise taxes to charitable deduction limitations—and even a potential resurgence in estate-based philanthropy—here’s what tax-exempt organizations need to know.

Endowment Excise Tax: Bigger Brackets, Bigger Burden

Higher education institutions are at the top of the bill’s nonprofit watchlist. Private colleges and universities with large endowments now face a sharply tiered excise tax under Section 4968:

Additional changes include:

• The minimum number of tuition-paying students jumps from 500 to 3,000
• More income is now included—such as student loan interest and federally subsidized royalties
• Expanded Form 990 reporting will capture student counts and income sources

Religious institutions and state colleges remain exempt. However, private schools near the 3,000-student threshold may want to reassess how they classify tuition-paying students and account for scholarship offsets.

Executive Compensation: The Top 5 Rule Is Out

Section 4960 just got broader. Previously, nonprofits only owed the 21% excise tax on their five highest-paid employees earning over $1 million. Under the new law, the tax now applies to any employee (past or present) who earned over $1 million in remuneration—no top five limit.

Effective 2026 and beyond:

• All current and former $1M+ earners since 2016 are now in scope
• More separation agreements may trigger excise tax
• Tracking remuneration becomes essential, not optional

Medical services and volunteer exceptions remain in place, but the new rules could lead to increased liability for organizations with long-tenured or contract-heavy leadership teams.

Charitable Deduction Changes: Good News, Complicated News

Giving incentives got a refresh—some encouraging, others more complex.

For individuals:

• Non-itemizers can now deduct up to $1,000 in cash donations to public charities ($2,000 for joint filers)
• Itemizers may only deduct contributions that exceed 0.5% of AGI. This new charitable deduction “floor” means that, for example, if your AGI is $100,000, you must donate more than $500 in a year before any of your charitable contributions become deductible.
• There is a new 35% cap on the value of itemized deductions, including the charitable contribution deduction. This means that high earners in the 37% tax bracket will not get dollar-for-dollar value from the deduction for their charitable gifts.
• The ability to deduct up to 60% of adjusted gross income (AGI) for cash contributions to public charities is now permanent

For corporations:

• Only charitable contributions above 1% of taxable income are deductible
• Disallowed amounts may be carried forward for five years (subject to the existing 10% limit)

Planning tip: Donors may benefit from “bunching” contributions across fewer years to clear the new AGI floors. High earners may benefit from front-loading charitable giving in 2025 before tighter itemized deduction caps begin in 2026.

Corporations might also consider treating contributions as deductible business expenses under Section 162 when appropriate.

Why Estate Planning Could Drive Charitable Bequests

One important change that could impact charitable bequests is the new legislation raises the estate and gift tax exemption to $15 million per individual ($30 million per couple), meaning far fewer estates will face federal estate tax.  It’s important to review your estate plan and update when needed to align your estate planning with your charitable giving.

What Didn’t Make the Bill

Some proposed changes didn’t make the final cut—welcome news for many nonprofits:

• The “parking tax” on fringe benefits remains a thing of the past
• The proposed increase to the private foundation net investment income tax was dropped
• Unrelated business income (UBI) rules, including research-related exclusions, remain unchanged
• No amendments were made to the excess business holdings rule

While the final legislation still brings meaningful changes, it’s far less sweeping than early drafts had suggested.

Looking Ahead: Be Proactive, Not Reactive

Whether you’re managing an endowment, navigating executive compensation rules, or adjusting your fundraising strategy, these changes require more than a quick policy tweak—they call for a strategic response.

For over 40 years, RGCO has served more than 150 not-for-profit organizations annually, including civic groups, health and welfare agencies, educational institutions, arts and cultural organizations, trade associations, and private foundations. We understand the unique financial, compliance, and governance challenges facing exempt organizations.

As the exclusive Tampa Bay member of Nonprofit CPAs—a nationwide alliance of independently owned accounting firms committed to the nonprofit sector—we offer clients both deep industry knowledge and nationally recognized best practices.

Contact us to discuss how the Big Beautiful Bill could impact your nonprofit’s strategy, reporting, or donor relationships.