One Big Beautiful Bill: Key Tax Impacts for Colleges and Universities

The One Big Beautiful Bill Act (OBBBA), signed into law by President Trump on July 4, 2025, delivers a sweeping overhaul of federal tax policy, with significant implications for higher education institutions. The final legislation does not include as many tax disadvantages as anticipated in earlier versions of the bill, such as imposing unrelated business income tax (UBIT) on royalties or reenactment of the parking tax.

Here’s a focused look at the most consequential provisions for colleges and universities.

Tax on Executive Compensation

What Changed:

Section 70416 broadens the section 4960 excise tax on compensation of all current employees exceeding $1 million and excess parachute payments on former employees who were employees during any taxable year beginning after Dec. 31, 2016. Previously, this excise tax applied only to the five highest-compensated employees and excess parachute payments. This is effective for taxable years beginning after Dec. 31, 2025.

Implications for Colleges and Universities:

The expanded executive compensation excise tax demands careful review. A 2017 drafting error in the Tax Cuts and Jobs Act (TCJA) allowing certain public universities to escape the tax remains uncorrected. This will continue to create inconsistent tax treatment across public and private institutions. High salaries for prominent athletic coaches, medical center executives or research leaders may now trigger excise taxes for a broader group. Public institutions currently paying the excise tax may want to revisit the loophole to see if they can fit inside it.

Endowment Tax

What Changed:

Section 70415 makes substantial revisions to the section 4968 excise tax on net investment income for certain college and university endowments. It introduces a tiered rate structure based on student adjusted endowment size, with rates ranging 1.4% to 8%. For institutions subject to the tax, it adds new Form 990 reporting requirements for tuition-paying students and total students.

The law preserves the exception for public universities but does not expand exemptions for religiously affiliated schools.

Implications for Colleges and Universities:

Large, wealthy private universities, including those with religious affiliation, will see a material tax increase, potentially affecting endowment spending and scholarship funding. (This will apply to universities with more than 3,000 students and a minimum endowment of $500,000 per student.) Development and finance offices should plan for new compliance obligations and prepare for greater donor scrutiny of how endowment income is managed.

Energy Credits & Deductions

What Changed:

The sustainability timeline shrinks for energy credits.

• Section 45W Credit for clean vehicles expires for commercial electric vehicles acquired after Sept. 30, 2025.
• Section 30C Credit for EV charging stations expires for property placed in service after June 30, 2026.
• Section 48E Credit for solar and wind projects expires for facilities placed in service after Dec. 31, 2021, unless construction begins before July 4, 2026.
• The Section 179D deduction for energy-efficient commercial buildings will expire for construction beginning after June 30, 2026.

Implications for Colleges and Universities:

Campuses with sustainability goals must fast-track design and construction of renewable energy projects, vehicle fleet upgrades and EV infrastructure to lock in tax savings. A one-year safe harbor provides some breathing room for construction projects currently in the planning stage.

Charitable Giving

What Changed:

The law permanently reinstates and raises the nonitemizer charitable deduction to $1,000 ($2,000 for joint filers) starting in 2026. It also introduces a 0.5% floor for itemized charitable deductions and makes permanent the 60% limitation for cash contributions, both effective in 2026. For corporations, a 1% floor now applies to charitable deductions beginning after 2025.

Additionally, the OBBBA also permanently  increased the estate and lifetime gift tax exemption to $15 million per individual ($30 million for a married couple), indexed for inflation beginning in 2026,. Finally, the state and local tax (SALT) deduction limit is extended and increased to $40,000 through 2029, with a phasedown based on adjusted gross income (AGI).

Implications for Colleges and Universities:

The expanded SALT deduction for 2025 creates a unique planning window for major donors to maximize deductions before the new floors take effect in 2026. On the other hand, the higher estate and gift tax exemption gives families more flexibility to transfer wealth directly to heirs, which may reduce the incentive to make large charitable gifts purely to avoid estate tax after 2025. Advancement teams should communicate proactively and clearly with high-net-worth donors about the timing of gifts for maximum tax benefit. That said, institutions should always remind donors to seek their own tax and legal advice.

Form W-2 and 1099 Reporting

What Changed:

The OBBBA raises the Form 1099 reporting threshold under section 6041 from $600 to $2,000 and indexes it for inflation, effective for payments made beginning in 2026. The law also adds mandatory W-2 reporting of tips and overtime pay for employee income tax deduction purposes, effective for calendar year 2025 wages.

Implications for Colleges and Universities:

Institutions should ensure systems are updated to comply with the W-2 and 1099 reporting requirements; start now for overtime reporting in your payroll system. Finance offices should anticipate fewer administrative burdens for the reduced number of 1099 filings, offset by increased administrative burdens for reporting staff overtime.

Other Provisions

What Changed:

Other miscellaneous OBBBA provisions will apply to staff and students. The tax impacts on employees for reimbursement of bicycle commuting and moving expenses will continue instead of sunsetting in 2026. Additionally, there are certain tax benefits for educational assistance, student loan discharges and other social security number requirements that students should be aware of.

Implications for Colleges and Universities:

Payroll, student financial services and tax compliance teams should audit benefit structures, update processes and communicate new requirements to students and staff.

The One Big Beautiful Bill Act is a sweeping new law, and more questions are more likely to come up. Your higher education and collegiate athletics CPAs and advisors are ready to help. Contact us to see how your institution might be impacted, and how you can leverage the OBBBA’s provisions to your advantage.

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