House Passes Budget Reconciliation Bill That Would Tax Nonprofits Nearly $50B

The budget reconciliation bill Republicans are calling “The One Big Beautiful Bill” heads to the Senate despite cries from the nonprofit sector that it would hand over a $50 billion tax bill to tax-exempt organizations over the next decade.

The bill passed narrowly in the House early yesterday morning with a 215-214 vote. The Senate is expected to vote on it after Memorial Day, with a goal of passing it by July 4.

The vote in the House was along party lines with the exception of two Republicans — U.S. Reps. Warren Davidson of Ohio and Thomas Massie of Kentucky — voting against the bill. U.S. Rep. Andy Harris, a Maryland Republican, voted “present” while his Republican colleagues, U.S. Reps. David Schweikert of Arizona and Andrew Garbarino of New York, did not vote.

Changes to the bill are expected in the Senate, but senators’ concerns have mainly centered around issues like reducing the deficit, adjusting cuts to Medicaid and green-energy tax credits, and shifting Supplemental Nutrition Assistance Program costs to the states. Therefore, it’s unclear if there are plans to remove any of the provisions affecting nonprofits since they are primarily designed to offset the tax cuts.

Here’s more on how the nonprofit sector is reacting and what is actually still in the bill.

What Nonprofit Sector Advocates Are Saying

Nonprofit advocates have been against the bill from the start, despite its inclusion of the long-awaited policy known as the Charitable Act, which has been introduced over the past few years but wasn’t able to pass both chambers as a standalone bill.

After the Tax Cuts and Jobs Act of 2017 increased the standard deduction through the end of this year, it reduced the number of taxpayers who needed to itemize. In turn, research found that reduced charitable giving by $20 billion in 2018.

With the current bill looking to maintain the increased standard deduction, lawmakers included a smaller version of the Charitable Act that would permit taxpayers to claim charitable contributions up to $150 if filing single or $300 if filing jointly. Its inclusion could once again incentivize contributions from small-dollar donors, a type of donor that has significantly pulled back its giving, according to the Fundraising Effectiveness Project’s latest data.

Past iterations of the bill allowed claims for as high as one-third of the standard deduction, and a temporary measure during the pandemic that was double the current proposal’s limits netted the nonprofit sector $10.9 billion in donations. Therefore, some organizations continue to advocate for an expansion of the provision included in this year’s bill.

However, organizations are critical of the remaining provisions that would burden nonprofits with almost $50 billion in raised taxes through 2035 to fund substantial cuts to individual taxes.

What the Nonprofit Sector Opposes in the Current Bill

Despite the Charitable Act’s inclusion, advocates remain against the bill due to various policies that would result in new and expanded taxes to nonprofits and foundations, including:

• A reduction in how much wealthy taxpayers can itemize.
• A tax on additional highly compensated nonprofit employees.
• A tiered tax rate for foundations’ assets, with the largest foundations paying the corporate rate.
• A tax on fringe benefits like parking and transportation.
• A minimum percentage of charitable contributions needed for corporations to get deductions.

“At a time when nonprofits are already struggling with federal funding cuts, these changes would dramatically reduce resources for organizations providing essential services,” Shannon McCracken, CEO of The Nonprofit Alliance, said in a statement. “The solution is clear: Build upon proven, bipartisan incentives like those in the Charitable Act to encourage greater generosity from everyday donors. When Americans give, communities thrive — this principle deserves protection through our tax policies.”

In addition to policies that specifically target nonprofits, there are items in the bill that target many nonprofit constituents, which could further impact nonprofits by increasing demands for services.

“It would raise costs on millions of families across the country, making it harder for them to meet basic needs and weather life’s ups and downs — while showering ever larger tax breaks on the wealthiest households,” Sharon Parrott, president of Center of Budget and Policy Priorities said in a statement. “The bill will drive up hunger and deepen poverty, including among children, and take access to life-saving health care away from millions of people. The Senate must reject it.”

What Has Been Removed From the Current Bill

The two provisions that were in early versions of the bill, but removed on Sunday included:

• The ability for the secretary at the Department of Treasury to strip a nonprofit of its tax-exempt status if the secretary deemed it as a terrorist-supporting organization.
• A tax that would target nonprofit brand sponsorship revenue.

McCracken noted that the tax-exempt status provision was removed from the bill on Sunday due to concerns surrounding the Byrd Rule, a Senate requirement that forces reconciliation bills to only include fiscal issues.

Here’s more on what’s at stake if this bill passes without modifications from the Senate.

Discourage Major Gifts

The Tax Cuts and Jobs Act of 2017 allowed tax breaks for individuals to contribute up to 60% of their adjusted gross income to charity. With the 2017 law expiring at the end of this year, that part of the tax law will revert back to 50% of adjusted gross income. In addition, itemized deductions will be capped at $0.35 per dollar — 2 cents less than current law.

Since more than half of charitable dollars came from donors giving $50,000 or more last year, according to the Fundraising Effectiveness Project’s latest data, proponents of the measure fear these changes will hurt major gift contributions.

Increase Taxes on Select Staff and Employee Benefits

The current law only taxes select nonprofit employees making more than $1 million annually, but the new proposal aims to impose an excise tax for all nonprofit employees earning a salary exceeding $1 million.

Additionally, the proposal looks to eliminate the nonprofit exemption on transportation and parking fringe benefits as unrelated business taxable income. Any “church-affiliated organization” would continue to be exempt.

Reduce Foundation Grantmaking

The most recent figures show foundations provide 19% of annual giving to nonprofits — or $103 billion in total, according to 2023 Giving USA figures. However, an excise tax would increase the current, across-the-board tax rate of 1.39% of assets to a tiered system that taxes the largest foundations as high as 10%.

Despite wealthy individuals largely benefiting from the bill’s tax breaks — Parrott cited those making more than $1 million a year will get an average tax break of $90,000 — these high net worth individuals are often using their own private foundations to distribute their wealth to charitable causes. But taxes targeting foundations and nonprofits could affect their philanthropic efforts.

Deborah Aubert Thomas, president and CEO of United Philanthropy Forum, believes these increased tax rates would “dramatically reduce grantmaking capacity,” in a year when nonprofits hope to lean on foundations to help offset what has been lost in federal government funding.

"This would divert billions of dollars from charitable purposes to the federal government at a time when communities are already struggling with reduced services,” she said in a statement. “Limiting foundations' ability to fulfill their role would place greater pressure on governments at all levels to meet community needs."

Disincentivize Giving From Small Businesses

Corporate giving only accounts for 3% of total giving, but that equates to $36 billion, according to Giving USA figures for 2023. The bill will require corporations to give at least 1% of their taxable income to receive a tax break. Currently there is no minimum — only a 10% ceiling for tax benefits.

Proponents of this provision worry small businesses whose giving falls below the 1% floor will no longer be incentivized to give. Like small-dollar individual donors, many nonprofits rely on small businesses for support — whether that’s local event sponsorships or in-kind donations. And with so much federal government funding being cancelled, nonprofits are looking to rely more heavily on support from corporations of all sizes.

“These changes may be seen as revenue-raisers in the short term, but they could have severe consequences for local and national nonprofits serving our communities," Art Taylor, president and CEO of Association of Fundraising Professionals, said in a statement.

If you’d like to voice your support or opposition to the bill — or any of the provisions within the bill — to your local representatives and senators:

• The Nonprofit Alliance is urging people to directly call their congresspeople by looking up their contact information here.
• The National Council of Nonprofits has provided this form to fill out.