2025 Non-Profit Tax Update

The following are matters of interest to June 30, 2025 fiscal year exempt organizations:

Impacts of H.R. 1 (“the One Big Beautiful Bill”) on Non-Profits

The One Big Beautiful Bill (OBBB) has several impacts on non-profits including charitable giving provisions, higher tax rates on certain university endowments, expanded excise tax on EO Highly Compensated Employees, and a new federal K-12 educational tax credit.

Charitable Giving Provisions-Starting With Tax Years Beginning After December 31, 2025

• Non-itemizers can now deduct up to $1,000 for individuals and $2,000 for married couples.
• Itemizer Gift Floor: There is no tax benefit for itemizers until gifts exceed .5% of AGI (Adjusted Gross Income).
• Corporate Gift Floor: For corporate giving, organizations must give at least 1% of taxable income to receive a deduction. Consistent with current law, the charitable deduction can’t exceed 10% of taxable income.

Higher Tax Rates on Certain College and University Endowments-Starting with Tax Years Beginning After December 31, 2025

• 8% excise tax on net investment income for private college and university endowments worth more than $2 million per student (as defined); a 4% tax on endowments between $750,000 to $2 million per student; 1.4% (existing rate) on endowments between $500,000 to $750,000.
• Small colleges (under 3,000 students) are exempt from the higher tax rates.

Expanded Excise Tax on EO Highly Compensated Employee-Starting With Tax Years Beginning After December 31, 2025

The current 21% excise tax on EO covered employees making more than $1 million a year is no longer capped at only the five highest-paid employees over the threshold per filing institution. Once effective, it applies to every employee hitting the limit, including a former employee (if it was a covered employee in a prior tax year beginning after December 31, 2016).

New Federal K-12 Educational Tax Credit-Starting in Tax Years Ending After December 31, 2026

Starting in 2027, for every $1 gift to an independent, 501(c)(3) scholarship-granting organization the taxpayer’s federal tax bill will be reduced by $1 (up to $1,700 per year).

Lastly, the nonprofit sector is bracing for future impacts of OBBB provisions including federal student loan changes in higher education, likely increased demand for services due to Medicaid and SNAP cuts, increased administrative burden with Medicaid eligibility work requirements, impacts on other state funding due to changes in state funding priorities, and impacts on donor giving.

Other OBBB provisions: For resources for information on other OBBB provisions you may be interested in (no tax on tips, overtime, etc.)—Please see this IRS Fact sheet : One Big Beautiful Bill Act: Tax deductions for working Americans and seniors | Internal Revenue Service

Please refer to our blog:  erc credits and one big beautiful bill | Maher Duessel CPAs

Other IRS News

The IRS TE/GE (Tax Exempt and Government Entities Division) has issued a letter documenting its key accomplishments for its year ended September 30, 2024. These key accomplishments include:

• Expanded the use of the Taxpayer Facing Employee-Document Upload Tool (TPFE-DUT) which allows taxpayers to electronically upload responses to requests for information to a portal on irs.gov which reduces case processing time and the need to send paper documents through the mail.
• Initiated development of two AI machine learning models. The first model automates the triage process for referrals, and the second model will prioritize and rank cases focusing on referrals reporting the highest strategic risk of noncompliance.
• Worked on changes to Form 990-T to allow TE/GE entities to make elective payment elections for clean energy tax credits.
• Leveraged data from an electronic pre-filing portal to conduct at-filing reviews of Form 990T for elective payments or refunds to mitigate the risk of duplicative or improper payments and fraud and to facilitate the timely issuance of refunds.
• Blueprinted a modernized case management system for TE/GE determinations.
• Implemented improvements to the TEOS (Tax Exempt Organization Search) tool.

Additionally, there has been no issuance of final regulations for group rulings or donor advised funds to date.

Other IRS reports you may be interested in:

2026 Objectives Report to Congress - Taxpayer Advocate Service

Snapshot Report: IRS Workforce Reductions as of May 2025

If you have any questions regarding tax-exempt organization tax matters, please contact a member of your engagement team.