Understanding the Tax Bill’s Impact on Nonprofits and Philanthropy

Created By: Gabe Dewey
July 15, 2025

After months of negotiations and revisions in both the House and Senate, the “One Big Beautiful Bill Act” was signed into law on Friday, July 4. While the final legislation excludes some of the more restrictive provisions proposed in the earlier House version, it nonetheless introduces several measures that will have immediate implications for donors, charitable organizations, and the broader nonprofit sector.

The following highlights summarize key provisions likely to impact philanthropic giving, operational planning, and overall fundraising strategy.

1. Universal Charitable Deduction: A Modest Boost for Broad-Based Giving

The introduction of a universal charitable deduction is expected to increase charitable giving by allowing all taxpayers–regardless of whether they itemize–to receive a tax deduction for their charitable donations.

Currently, about 90% of taxpayers do not itemize their deductions and therefore receive no direct financial incentive from the tax code for their giving. In other words, only the top 10% of taxpayers – those with higher expenses or income levels – receive any tax benefit for charitable contributions.

Under the new provision:

• Individuals can deduct up to $1,000 in charitable contributions.
• Married couples filing jointly can deduct up to $2,000.

This universal deduction encourages broader giving beyond the wealthiest Americans and rewards generosity at every income level. Taxpayers would not need to itemize to claim the deduction. The provision is estimated to generate $74 billion over 10 years for nonprofit organizations.

While this change will likely increase charitable giving among middle-income Americans, the impact is expected to be modest both for the donor and the sector. For example, someone in the 12% tax bracket would save $120 in taxes by giving $1,000, while someone in the 22% bracket would save $220 for the same donation. According to Giving USA’s 2025 Annual Report, the estimated $7.4 billion annual increase in individual charitable giving represents less than a 2% rise, given that individuals donated just over $392 billion in 2024.

2. Changes for Wealthiest Donors: Reduced Incentives for Major Gifts

To help offset the cost of the universal deduction, the legislation reduces giving incentives for wealthy donors who itemize:

• Taxpayers who itemize will not receive any charitable deduction until their gifts exceed 0.5% of Adjusted Gross Income (AGI). For example, if someone has an AGI of $1,000,000, the first $5,000 in donations will receive no tax benefit; only gifts beyond that threshold would count.
• Additionally, the top marginal rate has been reduced from 37% to 35%, limiting the maximum tax benefit for wealthier donors.

While a small change, this will have a large negative impact on the sector, as the top 10% of wealthy Americans make up the fast majority of individual donations

A study by Indiana University’s Lilly Family School of Philanthropy estimates that these provisions could decrease charitable giving by $4.1 billion to $6.1 billion annually – or $41 to $61 billion over 10 years. The Joint Committee on Taxation estimates the provision will generate $34.4 billion in tax revenue over the same period – an amount outweighed by the projected loss in charitable giving. When considered alongside the $392 billion donated by individuals in 2024, this may seem like a small change, but it could have a significant negative impact on the sector – as the top 10% of wealthy Americans account for the vast majority of individual donations.

3. New Tax Rates for College Endowments: Aimed at Wealthy Institutions

The legislation introduces a tiered tax on college and university endowments, based on the size of the endowment per student:

• Endowments over $2 million per student: 8% tax on net investment income.
• Endowments between $750,000 and $2 million per student: 4% tax.
• Endowments between $500,000 and $750,000 per student: Retain the existing 1.4% tax from the 2017 Tax Cuts and Jobs Act.

Most public universities with smaller endowments will fall below these thresholds. Additionally, small liberal arts colleges with fewer than 3,000 students are exempt – regardless of wealth – with will spare many prestigious but smaller schools.

Given that a significant portion of endowment spending – approximately two-thirds – is allocated to financial aid and academic programs , increased tax liabilities may compel these institutions to reassess their financial aid budgets.

4. Changes to Corporate Giving: Raising the Bar, Lowering the Impact

Corporations will now need to give at least 1% of their taxable income to charity to receive any tax benefit. For context, the median corporate giving rate in 2023 was 0.83% of pre-tax profits, according to the Chief Executives for Corporate Purpose (CECP).

A study by Ernst & Young suggests that corporations may start bundling their giving into specific years to maximize deductions. For example, a company that previously donated $500,000 annually might instead donate $1.5 million every three years.

While the corporate response remains to be seen, it’s estimated this change could result in a $45 billion decrease in charitable giving over 10 years while raising only $16.6 billion in tax revenue – a significant net loss.

With corporate giving representing just 7% of total charitable giving in 2024 (according to Giving USA), this change could shrink an already small portion of the philanthropic pie.

5. Other Measures

• A new federal tax-credit scholarship program offers donors a 100% tax credit (up to $1,700) for contributions to organizations providing private school scholarships. Participation is state-dependent, and critics warn this could set a precedent for favoring certain types of charities over others.
• An expansion of the excise tax on nonprofit executive compensation: Nonprofits will now face a 21% excise tax on any salary exceeding $1 million for any employee – not just the five highest-paid individuals, as under prior law.
• The nonpartisan Congressional Budget Office (CBO) estimates that roughly 16 million people could be uninsured due to the legislation. Many nonprofits that serve low-income individuals, people with disabilities, seniors, and those experiencing homelessness rely heavily on Medicare and Medicaid. As coverage diminishes for millions, these organizations will be forced to scale back and eliminate programs, even as demand for services surges due to loss of access to care. The cuts risk destabilizing the broader safety net, with ripple effects including job losses, increased uncompensated care, and greater strain on charitable resources.
• The Supplemental Nutrition Assistance (SNAP) program has been cut significantly, with an estimated 22 million families losing some or all of their SNAP benefits. Food banks, pantries, and community-based nonprofits will face heightened demand as more people lose access to this vital nutrition support. Concurrently, these nonprofits will likely face financial strain as states are required to take on a greater share of SNAP costs, potentially diverting funding away from other community services. The economic ripple effects could impact local businesses and employment, further stretching the resources of nonprofits working to fill the widening gaps in the social safety net.

Several controversial measures from the original House version were stripped from the final bill, including:

• A proposed 21% tax on college endowments, now reduced to 8%.
• A tax targeting private foundations with assets over $50 million, which would have affected approximately 2,600 foundations.
• A tax on transportation benefits provided by nonprofits to employees.
• A measure allowing the Treasury Secretary to unilaterally designate nonprofits as “terrorist supporting organizations”, which generated significant opposition and was removed prior to the final House vote.

Overall Takeaway

The “One Big Beautiful Bill Act” introduces policy changes that may pose new challenges for the nonprofit sector. While provisions such as the universal charitable deduction could encourage some mid-level giving, those gains may be offset by projected declines in contributions from high-net-worth individuals and corporations.

In parallel, reductions in federal spending on food assistance and healthcare programs may lead to increased demand for nonprofit services—particularly among organizations already operating with constrained capacity. As these changes take effect, nonprofits will need to carefully assess their fundraising strategies, resource allocation, and long-term planning to remain responsive and sustainable in a shifting environment.

Orr Group will continue to monitor the tax law and its effects on the nonprofit sector. We combine a business mindset with a deep understanding of philanthropic trends to help our clients design successful, sustainable fundraising strategies. Get in touch with us today to learn how we can help you raise more money, more effectively.

Gabe Dewey is an Associate Director at Orr Group. Gabe brings a background in legislation and advocacy work to collaborate with our partners on developing and executing fundraising strategies that drive revenue to enhance programs and services.