What Nonprofits Need to Know About the One Big Beautiful Bill Act

The One Big Beautiful Bill Act (OBBBA), recently passed by the U.S. House and now under Senate consideration, proposes sweeping changes to the tax code and federal spending. Nonprofits, whether charities, private foundations, or health systems, face significant implications if the bill becomes law.

Key Provisions Affecting Nonprofits

1. Changes to Charitable Giving Incentives

• Charitable deduction for nonitemizers: The bill introduces a charitable deduction of $150 for individuals and $300 for couples available to all taxpayers, not just those who itemize.
• Corporate Giving Limits: Under the proposed legislation, corporations can deduct charitable contributions only if the total equals at least 1% of their taxable income, with a maximum deduction capped at 10% annually. This threshold may discourage charitable giving, particularly among smaller or less profitable businesses.

2. Excise Taxes on Private Foundations and University Endowments

• Private Foundations: The bill creates a new, graduated excise tax on net investment income:
  • Assets below $50 million: 1.39%
  • Assets between $50 million and $250 million: 2.78%
  • Assets between $250 million and $5 billion: 5%
  • Assets above $5 billion: 10%

The excise tax could significantly reduce the grantmaking capacity of large foundations and those with mid-sized endowments.

• University Endowments: The excise tax on investment income for private colleges and universities would rise sharply, with rates up to 21% for the largest endowments. This is a significant increase from the current 1.4% rate, potentially impacting funding for scholarships, research, and operations.

3. Unrelated Business Income (UBI) and “Parking Tax”

• Parking and Transit Benefits: The bill revives the so-called “parking tax,” requiring nonprofits to count parking and certain transportation benefits as unrelated business income, subject to tax. This provision, previously repealed due to its unpopularity and administrative burden, could increase costs for nonprofits that offer these benefits to employees.

4. Executive Compensation Excise Tax

• Nonprofit Hospitals and Health Systems: The OBBBA expands the 21% excise tax on compensation over $1 million to all employees of charitable organizations, while compensation for medical services remains exempt.

5. Medicaid, Health Insurance, and Social Safety Net Changes

• Reduced Coverage: The bill proposes significant cuts and eligibility changes to Medicaid and the Health Insurance Marketplace, which could increase demand for uncompensated care at nonprofit hospitals and safety-net organizations.
• New Work Requirements: The bill introduces stricter work requirements for Medicaid and SNAP (food stamps), which could reduce access for vulnerable populations served by many nonprofits.

What Nonprofits Should Do Now

• Monitor Legislative Developments: The bill is not yet law and may change in the Senate. Key provisions could be altered, added, or removed.
• Assess Financial Impact: Nonprofits, especially those with large endowments, foundations, or significant employee benefits, should model the potential impact on their finances and operations.

The One Big Beautiful Bill Act (OBBBA) represents the most significant proposed overhaul of nonprofit tax policy since 2017. As the Senate considers amendments and works toward a final version, nonprofit organizations should closely monitor the legislative process. Given the narrow margins and ongoing negotiations, the bill’s passage is not guaranteed, but its potential impact on nonprofit finances, operations, and the communities they serve is significant. The next several weeks will be critical as the Senate aims to finalize the bill and send it back to the House for approval before the self-imposed July 4 deadline.