Tax Advice: How Nonprofits Should Adjust to New Giving Disincentives in the One Big Beautiful Bill Act
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2025 has been a challenging year for the nonprofit sector. Federal support has been broadly reduced, and organizations providing certain types of services have been targeted for even greater cuts. Immigration-related groups, out-of-favor arts organizations, climate organizations, and organizations associated with DEI missions all face an intermediate future that offers little promise of federal support. At the same time, corporations are feeling governmental pressure to keep their heads down and reduce their charitable support to nonprofits serving disfavored missions.
With receding help from the government and corporations, nonprofits have never been more reliant on individual giving. In 2026, they will face additional headwinds as the terms of the One Big Beautiful Bill Act (the “OBBBA”) become effective.
As described by The Washington Post, the OBBBA is “sweeping legislation [enacted] to make permanent trillions of dollars of tax cuts enacted in 2017.” Passed on July 4, 2025, the Act “marks a significant shift in federal benefits from low-income to high-income households.” Much commentary has been focused on how beneficiaries of Medicaid, student loans, and the Inflation Reduction Act are experiencing – or will soon feel – the bite of the legislation. Insufficient attention, however, has been given to how significantly the OBBBA will strain the nonprofit sector.
With material cuts in government services, demand for assistance from the nonprofits will grow. At the same time, the OBBBA upends the inducements for charitable giving. The bill reduces tax incentives for donations by major donors and corporations and only partially offsets the reduction by increasing incentives for small and midsize donors. Over the next decade, these changes are likely to siphon critical support away from nonprofits. This disruption will affect nonprofits unevenly; institutions with a robust and diverse community of individual donors will be best positioned to weather the storm.
New Tax Disincentives to Individual Major Giving
As a general matter, most affluent taxpayers itemize their deductions. According to the Tax Policy Center, in 2020, approximately 90% of all taxpayers took the standard deduction, but nearly two-thirds of taxpayers reporting adjusted gross income over $500,000 were itemizers. From the perspective of nonprofit development professionals, major donors are itemizers.
The OBBBA reduces the tax benefit available to itemizers in two ways:
0.5% AGI Floor: Under Section 70425, starting in 2026, itemizers who make charitable contributions will realize a tax benefit only to the extent that their qualified contributions exceed 0.5% of their adjusted gross income (“AGI”). In other words, the first dollars donated by itemizers will no longer be deductible, and as their income levels increase, donors will have to meet progressively larger thresholds before their charitable deductions yield a tax benefit.
Deduction Cap for High-Income Taxpayers: Under Section 70111, taxpayers in the 37% bracket (the highest bracket) will no longer get a dollar-for-dollar offset for their charitable giving. The deduction on their charitable giving will be capped at 35%. According to a study prepared by the Lilly Family School of Philanthropy, this provision alone is likely to reduce giving to nonprofits by $41 to $61 billion over the next decade.
The size of these disincentives is easily measurable. For example, before the OBBBA takes effect, a New York taxpayer with $600,000 in earnings would be permitted to deduct every dollar of a $25,000 charitable donation. At the applicable 37% rate, the donor’s tax benefit would be $9,250 ($25,000 x 0.37). The same taxpayer making the same donation in 2026 would realize a tax benefit of only $7,700. Only $22,000 would be deductible, and even that amount would be deductible only at the capped 35% rate.
By initially eliminating the deduction for the first increment of giving and then by limiting the deduction to 35%, the OBBBA materially reduces the tax incentives for charitable giving by wealthier donors. While major donors are motivated by a range of purposes, it is likely that the OBBBA will materially decrease individual major giving.
A New Tax Disincentive to Corporate Giving
The OBBBA will also depress corporate giving by setting a threshold for the deductibility of corporate charitable contributions. Under Section 70426, charitable gifts below 1% of a corporation’s adjusted gross income will no longer be deductible. For example, a corporation with $10 million in taxable income must give more than $100,000 to receive any charitable deduction, while the first $1 million in charitable gifts will not be deductible for a corporation with $100 million in taxable income.
The federal corporate tax rate is 21%. Although available data do not reveal how many corporations make charitable gifts in excess of 1% of their income, corporations that value the tax benefits of charitable giving will likely think twice before making donations. Local and regional nonprofits that rely on support from smaller, community-focused corporations may bear the brunt of this reduction in tax subsidy.
The new disincentive is estimated to cost nonprofits $45 billion over the next decade.
A New Tax Incentive for Giving by Small and Midsize Donors
The OBBBA does open one new opportunity for nonprofits. Under Section 70424, taxpayers claiming the standard deduction will be permitted to take an additional deduction above the standard deduction for their charitable gifts.
In 2017, the Tax Cuts and Jobs Act (the “TCJA”) disincentivized charitable giving by almost doubling the standard deduction, thereby reducing the number of taxpayers who itemized from roughly 30% to fewer than 10%. Without the tax incentive that could be realized by itemizing deductions, these taxpayers dramatically reduced their charitable giving. According to one study, the TCJA drained an estimated $20 billion in giving in its first year, in 2018.
The OBBBA aims to restore the tax incentive for giving by non-itemizing taxpayers. Starting in 2026, individuals will be able to deduct up to $1,000 in qualifying charitable gifts in addition to the standard deduction. For married couples filing jointly, this permissible deduction will increase to $2,000. In practice, the federal government will subsidize a portion of these gifts by reducing the tax obligations of the givers. One commentator, citing the Joint Committee on Taxation, estimates that taxpayers taking the standard deduction will contribute an additional $74 billion over the next decade.
Here’s how this new incentive will work for a New York City taxpayer earning $150,000 who gives $1,000 to a qualifying nonprofit. At a federal tax rate of 22%, a New York State tax rate of 6.33%, and a New York City tax rate of 3.65%, the charitable gift would reduce the taxpayer’s total tax liability by $320. In practice, the taxpayer’s $1,000 gift to support a favored cause would cost only $680. However, New York is a high-tax jurisdiction. A taxpayer in Madison, Wisconsin, making the same $1,000 gift would see their total tax liability reduced by $283, and a taxpayer in rural Georgia would see their tax liability reduced by $278. Prior to the OBBBA, none of these non-itemizers would have received any tax benefit for their $1,000 donation.
The opportunity for nonprofits to increase their support from taxpayers taking the standard deduction is substantial. The New York household that gives $2,000 to their favorite charities in 2024 will be able to give $2,620 to those charities in 2026 without incurring any additional personal sacrifice. Nonprofits that benefited from that support in 2024 should be positioned to capture increased support in 2026.
How Nonprofits Can Adapt to the OBBBA Changes
Although it is premature to estimate all of the effects of these changes, it would be overly optimistic to expect that additional giving by non-itemizers will offset the likely reduction in giving by major donors and corporations. Nevertheless, these changes will invite a range of outcomes, and institutions that act before the January 1, 2026, effective date will optimize their position. All nonprofits should begin by taking three steps:
Communicate with Donors. The changing incentives are subtle, and many donors will not focus on them until 2027, when they file their 2026 tax returns. Nonprofits must educate their donor communities about the effects and opportunities embodied in the legislative changes, and they should let supporters know that these changes are likely to strain operations. Nonprofits should call on existing supporters for additional support.
Encourage Strategic Giving. The OBBBA creates opportunities for nonprofits – and for donors. Major donors might be encouraged to accelerate their giving into 2025 to realize the full tax benefit of their deductions. Nonprofits should also inform their non-itemizing supporters that their gifts will become deductible in 2026 and invite them to share all or part of that new benefit.
Build Broader Donor Communities. Standard deduction filers are winners under the OBBBA. The law should encourage more giving by this group. Nonprofits that do the best job of growing their small and midsize donor populations will adapt most effectively to this new environment.
Conclusion
Charitable giving is motivated by altruism, social responsibility, and tax incentives. As the OBBBA reshapes these incentives, nonprofits must adapt to avoid losing critical financial support. Understanding the impacts of the OBBBA will enable organizations to plan strategically and maintain donor engagement in a changing philanthropic landscape.
About the Authors:
Henry Carroll is the Co-Founder and CEO of DonorSpring, a platform dedicated to helping nonprofits grow their individual donor fundraising with ease. He was previously a political fundraiser who worked with over 100 campaigns to build successful digital fundraising operations. DonorSpring has applied many of the innovations developed in that political work to nonprofit fundraising.
John K. Carroll, formerly a Senior Advanced Leadership Initiative Fellow, is the Chair and Co-Founder of DonorSpring and is committed to empowering nonprofits with tools that connect nonprofits with an individual donor community that will support their missions. John has spent most of his career in the criminal justice world, first as a federal prosecutor and then as a criminal defense attorney. Upon retirement from practice, John was the President at the Legal Aid Society in New York.