One Big Beautiful Bill Act: The Pros and Cons for Nonprofits
Originally published on July 9, 2025
The One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, is a sweeping reconciliation package with profound implications for the nonprofit sector. Beyond headline tax reforms, it introduces both incentives and constraints that directly influence donor behavior, operational funding and long-term viability for nonprofits, from community-based charities to major foundations.
We’ve reviewed the OBBBA to dissect those nuances and create a roadmap to understand and adapt to the law’s effects.
The Bright Side
The OBBBA brings meaningful new incentives for charitable organizations.
Universal charitable deduction
Starting in 2026, individuals who don’t itemize can deduct up to $1,000 ($2,000 for joint filers) for charitable gifts. This restores a vital incentive for more than 90% of taxpayers who previously faced no direct tax benefit for giving. For nonprofits, this opens the door to rekindle engagement with middle-income donors and supports broader outreach strategies.
Expanded deduction caps
Itemizing donors also benefit. Individuals may deduct up to 100% of adjusted gross income (AGI), and corporations can deduct contributions up to 25% of taxable income. While the act introduces floors that may limit net deductions, the higher caps provide clear planning opportunities — enabling nonprofits to encourage larger, strategically timed gifts at year end.
Infrastructure & R&D incentives
The OBBBA expands federal grant programs for nonprofit-led community development, including energy, broadband and climate resilience. It also enhances collaboration potential via transferable R&D tax credits. Nonprofits with mission-aligned capacity can now benefit from these grants and credit tools to accelerate innovation and infrastructure work, particularly in underserved regions.
The Red Flags
While there are some welcoming provisions, the OBBBA poses serious threats that warrant careful attention and mitigation.
Net loss in charitable dollars
While the universal charitable deduction is a positive step, new floors on deductions (0.5% of AGI for individuals and a 1% floor plus a 10% cap for corporate donors) risk suppressing giving at scale. This diminishment will impact nonprofits of all types, but particularly those dependent on annual fundraising and large donors.
Increased taxes on foundations
Private foundations face a steep new tiered excise tax on net investment income. The One Big Beautiful Bill implements a tiered structure for foundations with assets at $50 million or higher. The tier breakdown is:
- 1.39% for foundations with assets under $50 million (this remains unchanged)
- 2.78% for assets between $50 million and $250 million
- 5% for assets between $250 million and $5 billion
- 10% for assets above $5 billion
Medicaid cuts jeopardize FQHCs
The OBBBA includes Medicaid reforms that impose stricter eligibility requirements, funding caps and enhanced work mandates. These will directly affect Federally Qualified Health Centers, which rely on Medicaid reimbursements for much of their patient care revenue. The resulting loss of coverage and revenue threatens staffing levels, increases uncompensated care and undermines delivery of essential services in underserved communities.
Funding risks for Head Start programs
Discretionary domestic spending faces significant cuts, placing Early Head Start and Head Start funding in jeopardy. Reductions here could force nonprofits to reduce hours, downsize staff or limit enrollment. This directly harms low‑income families that rely on these programs for education, nutrition and early development.
Reactions From the Field
Industry leaders are sounding urgent warnings. The National Council of Nonprofits cautions that the OBBBA “harms millions … by weakening the nonprofit sector’s ability to meet growing needs.”
The National Association of Community Health Centers warns that Medicaid rollbacks “jeopardize CHCs, risking job and site closures and worsening health outcomes.” Meanwhile, the NonProfit Times reports nonprofit leaders are “sighing” and “vowing to continue the fight” over the Act’s threatened provisions.
What Your Nonprofit Can Do
To preserve mission integrity and financial stability, nonprofit leaders should act decisively. Here are a few steps you can take.
- Strengthen advocacy efforts. Mobilize board members and stakeholders to lobby Congress to revisit punitive components, specifically those related to foundation taxation and tax‑exempt revocation.
- Adjust budgets proactively. Incorporate potential reductions in donor contributions, Medicaid reimbursements and federal funding into upcoming fiscal plans. Consider contingency strategies such as program scaling or cost restructuring.
- Enhance communication. Educate donors and partners on the law’s complex impacts. Clearly explain how the universal deduction benefits many donors, and how corporate and foundation giving may change. Use newsletters or events to reinforce long-term engagement.
- Monitor implementation closely. As regulations roll out under Treasury and CMS rulemakings, stay informed and talk to your nonprofit CPA if you have questions. Compliance timelines may require rapid adjustments to payroll (e.g., exec pay taxes), parking/fringe benefit reporting and Medicaid billing systems.
The One Big Beautiful Bill Act marks a moment of tension for nonprofits. Its universal deduction and expanded caps offer renewed opportunity, yet they give way to significant long-term threats like reduced philanthropy and foundation revenue, compliance pressures, and service-level cuts. Nonprofits must maintain strategic vigilance, advocate through sector coalitions and recalibrate operations to sustain mission delivery through these and future policy changes.
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