Updated 8/13/25 to reflect provisions in the final bill.
The One Big Beautiful Act (OBBA) is a game-changer in many ways. Several provisions stand out as noteworthy for the nonprofit sector and have drawn attention from both nonprofit entities and taxpayers. While headlines focus on corporate tax cuts and changes to individual brackets, the nonprofit sector —particularly for schools and charities—could experience ripple effects that may impact revenue streams and reshape fundraising strategies.
The legislation addresses two significant areas for the nonprofit industry: education funding systems and charitable tax deductions.
Who will be the winners — or losers — when these tax changes are implemented? Below is a summary of the most relevant provisions impacting the nonprofit and charitable sectors and our thoughts on how they may play out.
Education and Scholarship Programs
- Tax Credit for Contributions to Scholarship Organizations
The bill establishes a new non-refundable federal tax credit of up to $1,700 for individuals who donate to qualified Scholarship Granting Organizations (SGOs) in states that opt into the program.
To be eligible, SGOs must be 501(c)(3) nonprofits (not private foundations) and meet strict operational and reporting requirements, including allocating at least 90% of revenue to scholarships and ensuring scholarships go to at least 10 students per year. States must also designate eligible SGOs and submit them to the federal government.
Winners:
Individual donors benefit from a dollar-for-dollar federal tax credit—up to $1,700 per return—when giving to SGOs in participating states. The credit can be carried forward for up to five years if unused. Education-focused nonprofits that qualify as SGOs may see increased donations, especially in states that opt in. Most important to taxpayers, families receiving scholarships gain access to broader K–12 education options, with scholarships becoming tax-free starting in 2027.
Losers:
Non-education nonprofits may face increased competition for charitable dollars, as donors shift giving to SGOs to maximize tax savings. Donors in non-participating states cannot claim the credit unless they give to SGOs in states that have opted in, creating potential disparities in who benefits.
Read more about SGO tax credits here.
- Expanded Uses of 529 College Savings Account
A 529 College Savings Account is a tax-advantaged investment account used to save for education expenses. Like an IRA, a 529 plan grows tax-free, so by the time account holders need to use it for education expenses, the funds have had time to grow—and withdrawals remain tax-free when used for qualified purposes.
Previously limited to college expenses, the OBBA expands the use of 529 savings plans beyond their previous scope——to now include K–12 education costs, such as private and religious school tuition. It also permits the use of funds for certain credentialing and professional certification programs.
Moreover, under the new law, families may now use up to $20,000 per year from a 529 plan to cover K–12 education costs. This is double the previous $10,000 annual limit.
Winners:
Private and religious K–12 schools may see increased enrollment as the expanded $20,000 cap makes tuition more financially manageable for families. Families will enjoy greater flexibility and tax advantages in planning for their children’s educational needs, from early schooling through career training. For workforce development and certification providers, new funding streams may develop as 529 funds become eligible for use toward certain credentialing programs.
Losers:
As more families explore private school options now supported by expanded 529 access, and Scholarship Granting Organizations (SGOs) attract increased donations through the new non-refundable federal tax credit, public schools could experience declining enrollment and reduced funding. Colleges and universities may experience a decline in 529-funded enrollments, as families allocate a greater share of savings to K–12 education or non-degree programs.
Individual Charitable Deductions
- Charitable Deduction for Non-Itemizers
Beginning in 2026, taxpayers who do not itemize deductions will be able to claim a modest charitable deduction on their cash contributions— $1,000 for individuals and $2,000 for joint filers. —
Winners:
Charities will enjoy a broader donor base, and smaller nonprofits that rely on modest individual donations may also see a boost in contributions.
We don’t believe this provision will have a significant impact on the non-profit sector as a whole, but it does offer a meaningful benefit to individual taxpayers by providing targeted tax relief.
Restrictions on Charitable Giving
- New Minimum for Corporate Charitable Deductions
Under the newly enacted law, corporations can continue to deduct charitable contributions of up to 10% of their taxable income. However, companies that give less than 1% of their taxable income in a year will no longer be eligible for a charitable deduction. This change is intended to encourage baseline levels of giving. Donations that fall below the 1% threshold cannot be deducted in that year, though companies are allowed to carry forward those contributions to a future year in which they do meet the minimum requirement.
- New Minimum for Individual Charitable Deductions
For individuals, the law introduces a 0.5% floor on charitable deductions, effective for tax years beginning after December 31, 2025. An individual’s otherwise deductible charitable contributions must be reduced by 0.5% of their contribution base—generally their adjusted gross income (AGI). The law also provides ordering rules for how contributions are applied and allows for carryforwards of contributions disallowed by the floor.
In addition, the law permanently extends the 60% AGI ceiling for cash contributions to most public charities. This ceiling, which was previously set to expire after 2025, now ensures that individuals may continue to deduct cash contributions to these charities up to 60% of their AGI.
- Cap on Deductions for Individuals’ Charitable Giving
If an individual taxpayer itemizes his taxes and donates to charity, his tax savings usually depend on his top tax rate. For example, a taxpayer in the 37% tax bracket will be eligible for a $3,700 tax deduction on $10,000 in charitable donations. However, OBBA provisions establish a cap on itemized deductions; even high earners can’t deduct charitable donations at more than a 35% rate, regardless of how much they give.
Winners:
Nonprofits with strong corporate partnerships will benefit from this provision, as companies may increase donations to meet the 1% threshold. Larger charities are more likely to receive increased corporate giving as businesses increase their giving to reach the threshold. Finally, individual donors making large cash contributions benefit from the permanent 60% ceiling.
Losers:
Corporations donating less than 1% won’t receive a deduction that year but can carry it forward once the threshold is met. Similarly, individuals must exceed a 0.5% AGI floor to see tax benefits from their contributions. For individuals in high tax brackets, OBBA’s new cap on charitable deduction rates may reduce the value of their deductions.
Overall Impact
- Bottom Line for Nonprofits
New donor incentives, such as the expanded scholarship credit and corporate deduction floor, could boost fundraising. For our clients and community, the $1,700 federal tax credit for contributions to scholarship organizations is the legislation’s biggest win. It will enable families and breadwinners to set aside tax-free funds for schooling for a broader range of students.
As always, nonprofits should be aware and informed of their exposures and vulnerabilities and stay adaptable as tax laws continue to shift and evolve.
This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
