The recently enacted One Big Beautiful Bill (OBBB) Act brings sweeping changes to the U.S. tax code, with both direct and indirect consequences for the nonprofit sector. While much of the media coverage has focused on higher education — particularly the increased excise tax on private institutions — the broader nonprofit landscape must also prepare for significant changes in donor behavior, available funding and rising community needs.
Let’s take a look at the tax changes that could make a big impact on nonprofit organizations.
Key Tax Changes Affecting Nonprofits
1. Revived Small Donor Deduction
After being unavailable since 2022, non-itemizers will now be allowed to deduct charitable donations up to:
- $1,000 for individuals, or
- $2,000 for married filing jointly
This provision may encourage broader grassroots giving from everyday donors and offers a new incentive for nonprofits to engage with their entire donor base — not just major contributors.
2. New Limitation for Itemized Donors
Donors who itemize will now face more restrictive thresholds:
- Charitable contributions must exceed 0.5% of adjusted gross income (AGI) before being deductible
- High-income donors (in the 37% tax bracket) will have their charitable deduction limited to 35% of the contributed amount — a move expected to reduce large-scale giving incentives
3. Revised Corporate Giving Rules
Corporate donors may now only deduct charitable contributions that exceed 1% of their taxable income.
This new restriction could reduce participation in giving programs, especially among small and mid-sized businesses, potentially leading to a decline in corporate philanthropy unless giving exceeds the 1% income mark.
4. Scholarship-Based Tax Credit
The bill introduces a new income tax credit for contributions to scholarship-awarding charities, provided:
- The donation is made in cash
- The organization supports elementary and secondary school scholarships
- Recipients come from households with income not exceeding 300% of the area's median gross income and are eligible to enroll in public schools
Nonprofits offering wraparound services, such as youth development or family support, may benefit indirectly from increased scholarship availability.
Rising Demand for Nonprofit Services
Beyond tax changes, the new tax package includes significant reductions in federal funding for specific services, increasing pressure on nonprofit organizations to fill the gaps:
Medicare Cuts
- Over $1 trillion in reductions projected over 10 years
- Expected to result in 11.8 million more uninsured individuals, likely increasing demand for healthcare access nonprofits and related services
Supplemental Nutrition Assistance Program (SNAP) Cuts
- $186 billion in projected reductions
- States may be forced to absorb up to 15% of SNAP costs
- Up to three million people could lose food assistance which would expand the need of food banks, shelters and other community-based organizations
New Work Requirements
- Adults receiving Affordable Care Act Medicaid expansion coverage will be subject to an 80-hour/month work requirement, adding administrative burdens and possibly reducing access to care
Planning Guidance for Nonprofit Leaders
To respond effectively to these changes, executive directors, board members and leaders should consider the following strategies:
1. Segment Your Donor Base
- Use the new $1,000/$2,000 deduction limit to re-engage small and mid-level donors
- Educate donors about the new deduction rules and how their giving fits within them
2. Strengthen Corporate Relationships
- Strategic outreach to larger corporations or those with structured giving programs may become more critical
- Highlighting the long-term impact and alignment with corporate social responsibility goals will be key to maintaining business support under these new rules
3. Increase Advocacy and Outreach
- Prepare for an increase in demand for services tied to healthcare, food security and education
- Consider coalitions or partnerships with other organizations to better meet community needs
4. Review and Adjust Development Messaging
- Ensure your fundraising materials are aligned with new donor incentives and clearly communicate impact
- Emphasize cash donation benefits — especially for scholarship-related contributions
Closing Thoughts — How to Move Forward Successfully
While higher education institutions are among the more visible targets of the new tax law, the indirect impacts on the nonprofit sector could be just as profound. Organizations that proactively adjust their fundraising strategy, service delivery models and advocacy efforts will be best positioned to thrive in this new legislative environment.
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