One Big Beautiful Bill Impact
The One Big Beautiful Bill Act (enacted July 4, 2025) makes several changes that affect how nonprofits raise funds, pay leaders, report to the IRS, and handle payroll. Most items start with tax years beginning in 2026; the overtime deduction runs from 2025–2028. Below is a plain-English snapshot of what’s changing and why it matters, tailored for non-tax audiences.
1. Universal Charitable Deduction
Key Change: Starting in 2026, people who do not itemize deductions can claim a new charitable deduction of up to $1,000 (up to $2,000 for married couples filing jointly) for cash gifts to public charities. Gifts to donor-advised funds and supporting organizations do not qualify.
Why it matters: Broadens the pool of potential donors and can boost small size gifts.
2. Itemized Individual Giving “Floor”
Key Change: Beginning in 2026, people who itemize can deduct only the portion of their charitable giving that exceeds 0.5% of their adjusted gross income. Amounts under that floor generally are not deductible.
Why it matters: It creates limitations on incentive to give. Annual-fund planning may need adjustments.
3. Corporate Giving “Floor”
Key Change: Starting in 2026, companies may deduct only the portion of charitable contributions that exceeds 1% of taxable income.
Why it matters: Routine corporate gifts may shrink or be restructured as business-purpose payments.
4. Executive-Pay Excise Tax Expansion
Key Change: From 2026 forward, the 21% excise tax on very high compensation at nonprofits applies more broadly. It can apply to any current or former employee whose annual compensation exceeds $1 million, and more severance packages may be treated as “golden parachutes.”
Why it matters: More leaders may trigger the tax. Expect reviews of pay design, vesting schedules, severance templates, and coordination across related entities.
5. Colleges and Universities with Large Endowments
Key Change: Starting with tax years beginning in 2026, the tax on investment income shifts to tiered rates based on per-student endowment: 1.4% for $500,000–$750,000, 4.0% for $750,000–$2 million, and 8.0% for more than $2 million per student.
Why it matters: Affects a small group of wealthy private institutions; raises tax costs and additional form 990 reporting (will expand to include the number of students (both tuition-paying and those in the per student endowment size.
6. Overtime Deduction for Workers and New Reporting
Key Change: For 2025 through 2028, workers can deduct the premium portion of overtime that is required under federal labor law (the “half” in time-and-a-half for hours over 40 in a workweek), up to $12,500 per person ($25,000 for married couples filing jointly), with income phase-outs. The law also creates new requirements to identify this federally required overtime premium separately on year-end wage statements and related reports.
Why it matters: If you have non-exempt staff who work overtime (common in social services, health care, education, facilities, and events), payroll must flag the federally required overtime premium and exclude any “extra” overtime created by state rules or employer policy. Use 2025 to test systems and prepare employee communications.
7. Year-End Reporting to Contractors — Higher Dollar Threshold
Key Change: For payments made starting in 2026, the dollar threshold that triggers a year-end tax statement to independent contractors increases from $600 to $2,000 (indexed for inflation after 2026).
Why it matters: Fewer small contractor statements to issue, but continue collecting taxpayer information and monitoring backup-withholding needs.
8. Employee Retention Tax Credit — Enforcement and Cutoffs
Key Change: The law adds penalties aimed at improper claims, bars refunds for certain late-filed 2021 claims after January 31, 2024, and gives the tax authorities more time to review 2021 claims and related income-tax effects extending statute of limitations to 6 years.
Why it matters: Be prepared for more reviews and potential adjustments. Coordinate with auditors on any required repayments, interest, or disclosures.
