29 Jul What the One Big Beautiful Bill Act Means for Nonprofits
The July 4 enactment of the One Big Beautiful Bill Act (OBBBA) marked a significant shift in U.S. tax policy, impacting nearly every sector — including nonprofits. While much of the media coverage has focused on corporate and individual tax changes, the nonprofit community must also take note. The legislation includes specific provisions that directly affect tax-exempt organizations, especially in areas like compensation, reporting, and financial management.
We’ve broken down the most relevant components of the OBBBA for nonprofit leaders and offered practical next steps to stay compliant and financially sound.
1. Expanded Excise Tax on High Compensation
Under the OBBBA, the excise tax on compensation over $1 million (Section 4960) has been expanded, meaning more nonprofit organizations and more employees may now fall under this rule. This could include not only direct compensation but also deferred compensation or severance packages.
Why it matters: Even nonprofits with modest budgets may be affected if they operate as part of a broader affiliated group or provide long-term deferred benefits to executives.
What you can do:
- Review your top compensation arrangements now, including deferred comp plans.
- Consider timing and structure of payments.
- Document compensation decisions clearly to support reasonable compensation arguments.
2. Increased Endowment Tax Rate
The OBBBA increases the tax rate on large nonprofit endowments, primarily impacting colleges, universities, and larger charitable foundations. While this may not touch every nonprofit, it’s a reminder that asset levels, and not just revenue, are under IRS scrutiny.
What you can do:
- Track your endowment size against IRS thresholds.
- Work with your investment committee on planning strategies that align with your long-term goals but account for the new tax implications.
3. Changes to Charitable Deduction Limits
While the new rules primarily affect individual taxpayers, nonprofits may feel the impact. The OBBBA includes a 0.5% reduction in the value of charitable deductions and new limits on itemized deductions, which could make some high-income donors less inclined to give.
How nonprofits can respond:
- Educate donors on tax-efficient giving strategies, such as donor-advised funds, gifts of appreciated stock, or legacy giving.
- Highlight impact in donor communications by clearly showing how contributions support your mission and make a difference.
4. Financial Reporting Considerations
If your nonprofit issues audited financial statements, the new tax law may affect how certain tax items, like unrelated business income (UBI) or deferred tax liabilities, are reported. These changes could impact your organization’s income tax expense and require updated financial disclosures.
What you can do:
- Talk with your audit team early to understand how the new rules may affect your year-end reporting.
- Be transparent: if the impact is significant, include a note in your financial statements explaining the changes.
5. Changes to 1099 Reporting
While not nonprofit-specific, the increased reporting focus on Form 1099-K, 1099-MISC, and 1099-NEC means nonprofits that hire contractors, run online fundraising platforms, or sell goods/services must be diligent about tax form compliance.
What you can do:
- Review your vendor and contractor payment processes.
- Make sure your finance team or bookkeeper is familiar with the new thresholds and reporting requirements.
Final Thoughts
While the OBBBA introduces a wide range of tax changes, it also brings added complexity and potential compliance considerations for nonprofits. From executive compensation limits to shifts in donor behavior, these changes highlight the need for thoughtful planning and strong financial oversight.
At Blackman & Sloop, we are committed to helping nonprofits navigate these changes with confidence. If you have questions about how this legislation could impact your organization, or you’d like a deeper review of your compensation or reporting strategies, our nonprofit team is here to help.