One Big Beautiful Bill Act Changes Rules for Tax-Exempt Entities
The 2025 federal fiscal bill, which went into effect on July 4, contains significant changes in tax law and policy for tax-exempt organizations. Among the specific provisions contained in the bill are:
- Significant revisions to charitable giving—The new law creates permanent changes in allowable charitable deductions, capping it at 60% of adjusted gross income
- individual taxpayers. That includes nonitemizers (persons who claim the standard deduction) who are allowed to take additional deductions to specified charities.
- The imposition of a 1% floor for deduction of charitable deductions by corporations and .5% for individuals
- Tax credits to individuals who give money to scholarship organizations
- Changes in the investment tax on private colleges and universities—Under prior law, private colleges and universities were subject to an investment tax if they had at least 500 tuition paying students. Under the new law, they will only be subject to the tax if they have more than 3,000 tuition-paying students. Under prior law, those colleges and universities that qualified for the investment tax paid a flat rate of 1.4% on investment income. Under the new law, the rate will be graduated, based on the per student endowment.
- Highly compensated employees of tax-exempt organizations—The tax revisions of 2017 capped the tax rate for a tax-exempt organization’s five highest paid employees, limiting the imposition of tax to 21% on any earnings over $1 million. The new law expands that to cover all employees of a tax-exempt organization.
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