What the “One Big, Beautiful Bill” Means for Nonprofits

On May 22, 2025, the U.S. House took a significant step by voting to approve and advance a sweeping piece of tax legislation, commonly referred to as the “One Big, Beautiful Bill.”  This far-reaching bill holds the potential to impact virtually all taxpayers, and notably, it includes a number of key provisions that directly affect tax-exempt organizations. The bill will now move to the Senate, which can either approve the bill or modify various provisions before it becomes law.

Changes to Unrelated Business Income (UBI)

Tax-exempt organizations are generally taxed on income derived from a trade or business that is not substantially related to their core mission, referred to as unrelated business income (UBI). The bill resurrects the much-debated “parking tax,” which increases an organization’s UBI by the amounts paid for certain parking and transit-related benefits. This tax first surfaced in the 2017 Tax Cuts & Jobs Act. It proved immensely unpopular, leading to a rare retroactive repeal by Congress just a year later. 

While royalty payments are generally excluded from UBI, early versions of this bill proposed to change that, bringing royalty payments for a tax-exempt organization’s name and logo into the UBI fold. This provision was eliminated in the final version passed by the House, but may re-appear.

Expansion of Excise Tax on Excess Compensation

Currently, tax-exempt organizations face an excise tax of 21% on compensation exceeding $1 million paid to any single covered employee, as well as an excise tax on certain large severance payments (often referred to as golden parachute payments) to these employees. Previously, the definition of a covered employee was restricted to the top five highest compensated employees, and those who previously had been such an employee in a preceding tax year. The bill removes that limitation such that any employee receiving compensation over $1 million, or a golden parachute payment, would trigger the excise tax.  Earlier versions of the  bill would have broadened the scope of this tax, imposing it on excess compensation paid to employees by taxable organizations related to tax-exempt organizations. Presently, only tax-exempt organizations are subject to this tax. 

Excise Taxes for Private Foundations and Institutions of Higher Learning

Private foundations currently pay an excise tax on their net investment income at a flat rate of 1.39%. The bill introduces a new, graduated tax rate structure based on an organization’s asset size. Foundations with assets of at least $50 million could see the excise tax rate double, with the rate topping out at 10% for organizations with assets exceeding $5 billion. 

Similarly, the excise tax rate on the net investment income of certain private colleges and universities would be updated from a flat rate of 1.4% to a graduated rate structure. The rate tops out at 21% for applicable institutions with student-adjusted endowments in excess of $2 million. 

Updates to Deductibility of Gifts to Charities

For Corporations: The bill proposes to limit the deductibility of corporate charitable contributions. Under this provision, aggregate contributions would need to represent at least 1% of taxable income before they could be deducted at all. Even then, they would still be capped at 10% of total taxable income in any one tax year.

For Individuals: Individuals could benefit from a new tax credit for gifts to qualifying “scholarship granting organizations.” Additionally, the bill also allows for a $600 deduction for charitable contributions for individuals who do not itemize their deductions on their tax return. This echoes a similar $300 charitable deduction that was in place during the COVID-19 pandemic as part of the CARES Act, which has expired.

Procedures for Revocation of Tax Exempt Status for Certain Organizations

Under section 501(p), the Secretary of the Treasury has the authority to revoke the tax exempt status of terrorist organizations. Earlier versions of the bill would have expanded this provision, empowering the Secretary to revoke the status of organizations deemed to have provided material support to terrorist organizations. This provision was eliminated from the final version passed by the House, but may re-appear.

Looking Ahead at the “One Big, Beautiful Bill”

It is important to remember that this bill is now going before the Senate, and it faces considerable hurdles in advancing through a divided legislature prior to becoming law. The provisions discussed here may be significantly altered or even removed entirely from any final legislation. If you have questions about these potential updates emerging from Washington and how they might affect your nonprofit, the Johnson Lambert team is here to provide clarity and assistance.