Major Changes Affecting Nonprofits and Other Tax-Exempt Organizations Proposed in the One, Big, Beautiful Tax Bill

Recently, the House Ways and Means Committee released a sweeping budget reconciliation package, “The One, Big, Beautiful Bill,” which contains broad provisions impacting many areas of taxation, including tax-exempt organizations.

While the bill could face additional adjustments as it works its way through the House toward approval, and subsequently the same process in the Senate, it provides an overall picture of the 2025 tax reform framework.

Below is a summary of major provisions that exempt organizations need to remain aware of.

The legislation broadens the scope of Unrelated Business Income Tax (UBIT) and other taxes, causing certain income and expenses of exempt organizations that were previously untaxed to become subject to taxation:

Section 112024 reinstates a tax on certain fringe benefits by treating the expenses for employee parking and transit benefits as taxable unrelated business income. The bill would treat expenses for employee transportation benefits (such as transit passes or parking provided by an exempt organization) as taxable income subject to UBIT.

In a surprise move, this revives a previously repealed “parking tax” rule from 2017, effectively imposing a 21% tax on the cost of parking spots, transit subsidies or other qualified transportation fringe benefits that charities provide to staff (notably, the updated version exempts churches and church-affiliated organizations from this tax).

Exempt organizations should consider the need to budget for this added tax expense or the potential impact of adjusting their transportation benefit policies.

Section 112025 expands UBIT by narrowing the royalty exclusion so that income from licensing an exempt organization’s name, logo or trademark will be taxable. The proposal would count such royalty revenue as unrelated business income, making it taxable at the corporate rate (currently 21%).

This change primarily affects charities that generate revenue through branding or “cause marketing” partnerships, as the royalty revenue earned through these branding deals, affinity credit cards, product endorsements or other trademark licensing will lose the current tax-free treatment.

Affected exempt organizations should review sponsorship and licensing agreements, as some previously tax-exempt income will now generate taxable UBI, requiring careful tracking and potential restructuring of such arrangements to minimize tax exposure.

Section 112026 clarifies that income from scientific research is exempt from tax only if the research results are made freely available to the public.

To remain tax-exempt, research institutions and universities must ensure that research activities meet the “public availability” criterion. If an exempt organization conducts proprietary research or research under agreements that restrict public dissemination, the income could be treated as taxable.

Affected organizations should consider policy changes to publish findings openly or be prepared to allocate funds for UBIT on research contracts that do not meet the public access requirement.

Section 112020 extends the current 21% excise tax on compensation over $1 million to all employees of a tax-exempt organization, not just the top five highest-paid employees.

This means large exempt organizations like major hospitals, universities or national charities could face tax on many more employees (for example, star professors, surgeons or coaches) with seven-figure pay.

The proposal also closes a loophole for public institutions by ensuring that highly paid employees of state universities are included.

Organizations with multiple executives, star employees or highly paid medical/research staff should evaluate the impact of this potential change, as this could significantly increase employment costs.

Section 112021 expands the college endowment excise tax by adding steep tiers up to a 21% tax on net investment income for some of the wealthiest private colleges and universities (those with assets over $2 million per student).

Universities with large endowments could see substantial tax bills, which may force changes in endowment spending or tuition policy.

Exempt organizations with endowments should ensure transparency and articulate how funds are used for public benefit, as the broader sector trend is toward questioning large accumulations of tax-exempt assets.

Section 112022 replaces the flat 1.39% excise tax with a graduated rate on private foundations’ net investment income:

Large private foundations would face significantly higher tax burdens on their endowments, and may have fewer funds available for grants, impacting exempt organizations that depend on their funding.

Foundation managers should evaluate payout strategies, increase grant distributions or adjust investment strategies to account for the steep new taxes on investment returns.

Section 112023 provides a technical fix to the “excess business holdings” rules by disregarding certain stock redemptions when calculating a foundation’s ownership in a business.

This is a narrow relief for foundations that hold business interests, as it prevents unintended penalties when a company repurchases shares. Foundation boards with equity holdings should still monitor ownership percentages, but this change offers more flexibility in compliance with IRS asset-diversification requirements.

Section 110002 permanently extends the higher standard deduction (currently $15,000 single / $30,000 joint for 2025) and temporarily increases it by an additional $1,000 ($2,000 for joint filers) through 2028.

Section 110112 reinstates a partial deduction for charitable contributions of individuals who do not itemize. Charitable cash donations for tax years 2025 through 2028 up to $150 ($300 for married filing jointly) would be deductible.

With an even larger standard deduction, fewer taxpayers will itemize their deductions, meaning fewer will deduct charitable gifts. Exempt organization fundraisers should prepare for reduced tax-driven giving incentives, emphasizing the intrinsic mission impact of donations and leverage the above non-itemizer deduction to sustain broad-based support.

Section 110112 reintroduces (through 2028) a tax deduction for charitable donations for taxpayers who do not itemize deductions on their tax returns.

This above-the-line deduction, which had briefly existed in 2020–2021, would allow filers taking the standard deduction to additionally deduct up to $150 of cash donations to charity (or $300 for joint filers) each year. Donations to donor-advised funds and supporting organizations are excluded from this benefit, which aligns with prior rules.

This new deduction could encourage small donations from a broader base of donors. Exempt organizations may see a slight boost in giving from non-itemizers and should educate and remind all donors about this available deduction.

Section 112028 imposes a 1% giving floor for corporate charitable deductions, meaning a business must donate at least 1% of its taxable income for the contributions to be deductible (the existing 10% ceiling remains, with a 5-year carryforward for excess).

Exempt organizations that rely on corporate sponsorships or gifts should discuss this change with corporate partners – it could encourage companies to increase charitable budgets to secure a tax benefit, especially for those near the 1% level.

As of late May 2025, the measures relevant to exempt organizations continue to advance through the House approval processes. If the House passes the consolidated bill, it will move to the Senate via the reconciliation process, which allows approval with a simple majority.

Exempt organizations should closely follow the progress of the One Big Beautiful Bill as it moves through Congress. Staying informed and preparing – from adjusting budgets for new taxes to communicating new giving incentives to donors – will help exempt organizations navigate the changes if and when this legislation becomes law.

Being proactive is key, as the House aims to advance this package quickly, with a goal to pass the bill by Memorial Day, and exempt organizations must be ready to adapt to the final requirements.