The One Big Beautiful Bill Act (H.R. 1), passed by the House of Representatives on May 22, 2025, introduces significant tax and policy changes that could profoundly affect nonprofit organizations if enacted by the Senate. Below are overviews of the key provisions impacting the nonprofit sector and their potential consequences.
Key Provisions Affecting Nonprofits
1. Expanded Excise Tax on Executive Compensation
H.R. 1 expands the existing 21% excise tax on nonprofit executive compensation exceeding $1 million. The tax previously applied to the top five highest-paid employees but now extends to all employees and former employees earning above this threshold. This change takes effect for taxable years beginning after December 31, 2025.
This change could significantly increase operating costs for nonprofits, particularly large organizations like hospitals and universities where multiple executives may earn high salaries. For nonprofit health systems, this could strain already thin operating margins. The result may be reduced services or financial distress.
2. Increased Excise Tax on Private Foundations
The bill replaces the current flat 1.39% excise tax on private foundations’ net investment income with a tiered system based on asset size:
This graduated structure could reduce the financial resources available to foundations, limiting their ability to fund grants and support nonprofit missions. The inclusion of assets from related organizations in these calculations further complicates compliance and may disproportionately affect larger foundations.
3. Tax on Private Colleges and Universities
The current 1.4% excise tax on net investment income for private colleges and universities is replaced with a tiered system based on “student-adjusted endowment.” Institutions with endowments exceeding $2 million per student face a tax rate of up to 21%.
This could impact academic medical centers and other nonprofit educational institutions. The changes may lead to renegotiated funding arrangements and reduced support for affiliated nonprofit health systems.
4. Tax on Qualified Transportation Fringe Benefits
H.R. 1 reintroduces a tax on the cost of providing qualified transportation fringe benefits, such as employee parking. The bill treats these expenses as unrelated business taxable income (UBTI). This provision was previously repealed in 2019 due to widespread criticism.
The reinstated tax could generate an estimated $2.7 billion over 10 years but adds financial and administrative burdens to nonprofits. Organizations with large workforces like hospitals face particular challenges.
5. Charitable Giving Incentives
The bill offers some positive measures for nonprofits:
Non-Itemizer Deduction: A temporary reinstatement of a charitable deduction for non-itemizers ($150 for single filers, $300 for married filers) for 2025–2028 could encourage small-scale giving. However, its limited scope may have minimal impact.
Scholarship-Granting Tax Credits: A new tax credit of up to $5,000 for contributions to scholarship-granting organizations could bolster educational nonprofits, though it requires significant administrative oversight.
Expanded 529 Accounts: The bill allows 529 accounts to cover elementary, secondary, and homeschool expenses, potentially benefiting nonprofit educational institutions.
6. Removed Provisions
Earlier drafts of H.R. 1 included provisions that were removed from the final House-passed version but could reappear in Senate revisions:
Tax on Royalties: A proposal to tax royalties from licensing nonprofit names and logos as UBTI was eliminated, sparing nonprofits additional tax liabilities.
Terrorist-Supporting Organizations: A provision allowing the Treasury Secretary to revoke tax-exempt status for organizations deemed “terrorist-supporting” was removed due to concerns over due process and potential abuse. Nonprofit advocates, including the National Council of Nonprofits, opposed this measure, citing risks of weaponization.
Broader Implications for 501c3 Organizations
The bill’s cuts to Medicaid and SNAP could indirectly strain nonprofits by increasing demand for their services. The Congressional Budget Office estimates that 13.7 million people could lose Medicaid coverage, and 11 million could face reduced SNAP benefits. This could overwhelm nonprofits serving low-income communities.
Additionally, mandatory community engagement requirements for Medicaid eligibility could impose new administrative burdens on nonprofits. These organizations may be tasked with facilitating or verifying volunteer activities.
Concerns and Opposition
Nonprofit organizations, including the National Council of Nonprofits and the Council on Foundations, have voiced strong opposition to H.R. 1. They cite increased taxes, reduced funding, and threats to due process. The expanded excise taxes and potential reintroduction of removed provisions could hinder nonprofits’ ability to serve their communities effectively.
What’s Next for Nonprofit Tax Policy
As H.R. 1 moves to the Senate, nonprofits have an opportunity to advocate for the removal of harmful provisions. The Senate’s revisions could alter or eliminate these measures. Congressional leaders aim for final passage by July 4, 2025.
Nonprofits are urged to contact Senators to oppose increased taxes and program cuts that could undermine their missions.
Conclusion
While H.R. 1 offers some incentives for charitable giving, its expanded taxes and potential indirect impacts through safety net cuts pose significant challenges for nonprofits. If passed in its current form, the bill could reduce financial resources, increase operational costs, and strain service delivery. This particularly affects organizations serving vulnerable populations. To help navigate the complexities of this bill and its implications for your organization, contact Daniel B. Sefick, CPA, CGFM, Principal and National Director, Nonprofit Solutions, for strategic guidance and support.
Speak to one of our professionals about your organizational needs
