The domestic-policy bill that President Trump signed on Friday will add new stresses to nonprofits already reeling from executive orders in the first five months of his presidency.
The bill will cut nearly $1 trillion from Medicaid over 10 years and slash billions from food-assistance programs — hurting the poorest Americans that many charities serve — while revamping giving incentives in ways that could make fundraising less predictable.
The legislation passed the House without changes after an all-night session in which Republican holdouts ultimately fell in line amid pressure from Trump and House Speaker Mike Johnson. No Democrats voted for the legislation.
Even though nonprofit advocates ultimately won on the item they had invested in the most — a charitable incentive for everyday donors — that victory seemed hollow in the face of a lot of bad news. Akilah Watkins, Independent Sector’s CEO, didn’t get around to celebrating the deduction for individual givers until the fourth paragraph of her statement about the legislation.
Instead, she acknowledged upfront that the bill would “hurt the work of our sector and make it harder to meet the needs of those we serve.”
Provisions in the new law raise unsettling questions about how the nonprofit world will be affected — and the answers may not be known for months or years. Among them:
- Will the cuts to Medicaid and food assistance also call into question the sustainability of the many charities that help people in need?
- Will the new giving incentives for everyday donors bring in enough money to offset the new law’s declining charitable incentives for the wealthy and corporations?
- How will some elite colleges and universities, shaken by cuts to federal grants amid a frontal assault from the Trump administration, cope with the new blow of sharply higher taxes on their endowments?
The harshest criticism came from foundations and charities that serve the country’s poor. The latest estimates project that as many as 17 million lower-income Americans will lose their health insurance under the new law.
“At its core, the bill violates everything we know about fighting poverty and sparking economic opportunity,” said Richard Buery Jr., CEO of the Robin Hood, New York City’s largest poverty-fighting organization, in a statement.
One of the few organizations in the nonprofit world applauding the final legislation was the Philanthropy Roundtable. Although many of the Roundtable’s members are conservative foundations, the organization was a fierce critic of a proposal to tax private foundations in the initial House version of the bill. The group called out the hypocrisy of Republicans preaching small government and private solutions, yet at the same time looking to tax private foundations.
But the Roundtable’s chief operating officer, Elizabeth McGuigan, had nothing but praise for the final product. “Government spending is shrinking — which is a good thing — and generous Americans are ready and willing to support causes and communities around the country,” she said in a statement.
Here are some of the major provisions affecting charities and foundations in what was originally called the Big Beautiful Bill. It will:
Enable everyone to take a charitable deduction. Only about 10 percent of taxpayers itemize their taxes — which means most of the remaining 90 percent get no tax benefit from their giving. The law will fix that by allowing all taxpayers to deduct a portion of their charitable giving — up to $1,000 for individuals and $2,000 for married couples.
Limit the value of tax write-offs for the wealthiest donors. The legislation will help pay for the deduction for people who don’t itemize by reducing giving incentives for the wealthy people who do itemize. The itemizers will receive no tax benefit until their gifts exceed 0.5 percent of adjusted gross income. And the wealthiest donors — who pay tax at the top marginal rate of 37 percent — will be limited to a deduction of just 35 percent, meaning that a $100,000 gift will yield a deduction of just $35,000, down from $37,000 under current law.
Add a new hurdle for corporate giving tax breaks. Companies will have to give at least 1 percent of their taxable income to charity before they can begin taking any deduction for charitable giving. Some giving experts have speculated that this provision would encourage large, visible corporations to give more — but it could just as likely prompt smaller companies, with slimmer profit margins, to give up charitable giving altogether. The median company gave under 1 percent of pre-tax profits in 2023, according to Chief Executives for Corporate Purpose.
Raise taxes on college endowments. The expansion of the excise tax on endowments went through a lot of permutations in the Senate. Ultimately, the Senate language used in the final legislation was far less onerous than the House version, which had rates as high as 21 percent. The notable increases are for the richest institutions — but small colleges (under 3,000 students) will be exempt. The measure will put a new 8 percent tax on net investment income at endowments worth more than $2 million per student and a 4 percent tax on endowments worth $750,000 to $2 million per student. Endowments worth $500,000 to $750,000 per student will continue to pay the current 1.4 percent tax.
Affect a federal tax-credit scholarship program. The provision, backed by conservatives seeking a tax credit for school choice, will grant donors to scholarship organizations a 100 percent tax credit worth up to $1,700. States will have to opt in to the program. Some critics of the credit fear this provision will open up the idea of favoring certain kinds of charities over others.
Expand tax for highly compensated employees. The provision applies an excise tax of 21 percent to nonprofits that have employees making more than $1 million per year. The nonprofit will pay the tax on the total amount over $1 million earned by every employee making that amount or more. Current law applies the tax to only the five highest-paid employees.
What’s Out
An excise tax on private foundations, proposed by the House, would have affected roughly 2,600 foundations with assets of $50 million or more. The escalating tax would have hit the biggest foundations the hardest and cost the charitable sector about $2.9 billion a year, according to an estimate by United Philanthropy Forum. The Senate removed it.
The Senate also removed a House proposal that would have taxed nonprofits on the transportation benefits they provide to employees.
The House had initially included a provision that revived last fall’s controversial “stop-terror financing” legislation, which would have allowed the Treasury Secretary to unilaterally designate a nonprofit as a “terrorist supporting organization.” The provision was removed before the House’s first vote on the legislation in May.
