Congress Passes Major Tax Package; Nonprofits Directly Impacted

After months of debate and negotiations, Congress has passed H.R. 1, and the President has signed it into law. This bill, formerly known as the “One Big Beautiful Bill Act,” is a major tax package that directly impacts the nonprofit sector and its ability to serve communities nationwide. 

The final bill ultimately reduces resources available to nonprofit organizations, negatively impacting their ability to provide essential services to their local communities. The final bill also harms millions of people by taking away their access to healthcare and food assistance. For more details, see NCN’s updated chart of tax provisions and press statement on final passage.

"H.R. 1 will ultimately harm the millions of people in America who rely on their local nonprofit organizations for essential services,” stated Diane Yentel, President and CEO of the National Council of Nonprofits. “While there are some bright spots, including a universal tax deduction for charitable giving, the tax bill falls far short of meeting the growing needs of the nonprofit sector to fill gaps unmet by government and the private sector.” 

Thanks to the effective advocacy of nonprofits nationwide and congressional champions, the final bill includes a new universal charitable deduction to encourage charitable giving among the approximately 90% of taxpayers who do not itemize their deductions. Under this provision - which is modeled after the bipartisan Charitable Act introduced by Sen. Lankford (R-OK), Sen. Coons (D-DE), Rep. Moore (R-UT), and Rep. Pappas (D-NH), and co-sponsored by Sen. Collins (R-ME) - individuals could receive a tax incentive up to $1,000 and married couples could receive up to $2,000. The universal deduction could help incentivize greater giving to the work of nonprofits in communities, encourage taxpayers to give more to the missions they support, and help reduce demands on governments. This provision is estimated to generate $74 billion over 10 years for nonprofit organizations.

Despite this positive addition, the final bill includes several other provisions that disincentivize charitable giving. The bill decreases the value of the charitable deduction for high-income taxpayers by capping itemized deductions, sets a new 0.5% floor for the itemized charitable deduction, and discourages corporate giving by creating a 1% floor for charitable contributions by corporations. At a time when nonprofit organizations face enormous financial challenges, these tax provisions will make it harder for organizations to fill gaps unmet by local, state, and federal governments and the private sector. Together, these provisions are estimated to reduce resources for nonprofit organizations by at least $81 billion over 10 years.

In short, the tax bill will likely result in fewer resources for nonprofit organizations. As a result, these vital institutions may be forced to cut back on services or serve fewer people. This harm is compounded by other attempts to reduce or eliminate funding to nonprofit organizations through arbitrary and unlawful cuts to congressionally-approved spending and reckless federal funding freezes by the Trump administration.

“This tax bill will make it harder for nonprofits to meet the critical needs of their communities, whether in small towns or big cities, in every congressional district and state,” stated Yentel. “Nonprofits show up in times of crisis, providing disaster relief, crisis support, and safety from danger, and they meet everyday needs from providing childcare and eldercare, job training, or essential food and shelter.”

The final bill directly harms millions of people by taking away their access to healthcare and food security. The bill makes significant changes to Medicaid and the Supplemental Nutrition Assistance Program (SNAP) that will lead to millions more people without access to these vital safety net programs, putting more pressure on nonprofit organizations to meet these needs.

Because of the effective advocacy of nonprofit organizations, however, the final bill is a marked improvement over earlier versions. Nearly 2,300 nonprofit organizations signed a national letter – led by NCN, Council on Foundations, Independent Sector, and United Philanthropy Forum – urging Congress to protect the nonprofit sector and its ability to serve communities. Thousands more contacted their Members of Congress, published op-eds and letters to the editor, educated community members, and more! As a result of this collective advocacy, congressional leaders removed several provisions that would have significantly harmed the nonprofit community, including provisions that would have granted unprecedented authority to the Executive Branch to revoke nonprofit tax-exempt status without due process and imposed new taxes on foundations and the transportation benefits provided by nonprofit employers that would have further reduced resources available to serve communities. Thank you for your steadfast advocacy over the past several months!

In summary, the final bill:

• INCLUDES an incentive to charitable giving by establishing a universal charitable deduction so you no longer need to itemize your taxes to be incentivized to give to charitable nonprofits.
• INCLUDES a disincentive to charitable giving by individuals through a cap on itemized deductions and a new 0.5% floor.
• INCLUDES a disincentive to corporate giving by creating a 1% floor for charitable contributions by corporations.
• INCLUDES the largest cuts to Medicaid and SNAP in history, which will lead to millions of people losing access to these resources. 
• INCLUDES a new sliding scale tax structure on university endowments, ranging from the current 1.4% to up to 8% for some of the largest universities.
• DOES NOT INCLUDE the proposed tax on foundations.
• DOES NOT INCLUDE the proposed tax on nonprofit employers and the transportation benefits they provide to their employees.
• DOES NOT INCLUDE the proposed 10% administrative fee on contributions to the Combined Federal Campaign.
• DOES NOT INCLUDE a provision granting authority to the executive branch to revoke nonprofit status without due process.

NCN and MANP will continue to monitor the impact of the tax law as it is implemented in communities nationwide, and we will continue to advocate for legislation to bolster the capacity of nonprofit organizations to serve their communities.

Resources

• Bill Text: H.R. 1
• Chart of Tax Provisions Affecting Charitable Nonprofits, National Council of Nonprofits.