The “One Big Beautiful Bill” (OBBBA), passed by the House of Representatives on May 22, 2025, includes several key provisions that impact tax-exempt organizations. These provisions aim to extend or modify existing tax policies, primarily from the 2017 Tax Cuts and Jobs Act (TCJA), and introduce some new regulations, particularly for larger organizations and those dealing with specific types of income.
Below is a summary of the relevant provisions for exempt organizations, as outlined in the House-passed version of the bill.
Eleanor Livingston, CPA, MSTNonprofit Tax Director[email protected]
Unrelated Business Income Tax (UBIT) Changes
Qualified Transportation Fringe Benefits: The bill would reinstate the provision requiring tax-exempt organizations to treat the expenses for qualified transportation fringe benefits (like parking and transit) as unrelated business income (UBI), and thus subject to UBIT. This was a debated provision in the 2017 TCJA that was later repealed. Scientific Research: The bill would narrow the exclusion from UBIT for income from scientific research. Only income from research that is publicly available would be exempt from UBIT.Excise Taxes
Excess Compensation: The 21% excise tax on compensation exceeding $1 million would be expanded to include all current and former employees receiving over $1 million, including certain large severance payments. Private Foundations: The 1.39% excise tax on net investment income would be replaced with a tiered structure based on asset value, ranging from 1.39% for assets below $50 million to 10% for assets above $5 billion. Private Colleges and Universities: The 1.4% excise tax on investment income would be replaced with a tiered structure based on “student-adjusted endowment,” potentially reaching a 21% rate for institutions with large endowments. Exemption for Religious Institutions: Some religious colleges and universities would be exempt from the endowment tax.Changes to Charitable Contribution Deductions
Corporate Contributions: In addition to the existing 10% ceiling, a 1% floor would be added for corporate charitable contribution deductions, meaning deductions would only apply to amounts exceeding 1% of taxable income. Non-Itemizer Deduction: A temporary charitable deduction for non-itemizers, capped at $150 ($300 for joint filers) for cash contributions, would be reinstated for tax years 2025 through 2028. Scholarship Granting Organizations: A new income tax credit would be created for contributions to scholarship-granting organizations supporting elementary or secondary education.Potential Future Changes
Tax-Exempt Status Revocation: The House-passed version removed a provision in an earlier version of the bill that would have allowed the Treasury Secretary to revoke nonprofit tax-exempt status based on suspected ties to terrorism.Important Considerations
Senate Review: The bill may be modified in the Senate before enactment.Focus on Larger Organizations: Provisions related to excise taxes would primarily affect larger exempt organizations.Potential Negative Impacts: Some critics argue the changes could increase costs and compliance burdens for charities. For more information or questions about this article or to find out how Windes can assist, please contact our Nonprofit Team at [email protected]. This article was written by Windes Nonprofit Tax Director Eleanor Livingston. Eleanor Livingston, CPA, MSTNonprofit Tax Director[email protected]