The Impact of the OBBBA on Nonprofits

ARTICLE | March 02, 2026

What happens when tax reform meets the nonprofit sector? In July 2025, the One Big Beautiful Bill Act (OBBBA) became law, bringing sweeping tax changes that will reshape how nonprofits raise funds, compensate executives, and plan for long-term sustainability. With most provisions taking effect in January 2026, nonprofit leaders have a critical window to assess the impact and prepare strategically.

For organizations already navigating tight budgets and increased demand for services, the OBBBA introduces challenges that go far beyond tax reporting. From altered donor incentives to expanded excise taxes, these changes will influence fundraising strategies, compensation structures, and board governance decisions for years to come.

Corporate Giving Just Got More Complicated

One of the most significant changes under the OBBBA affects corporate charitable contributions. Corporations can now only deduct charitable donations to the extent they exceed 1% of taxable income, with an overall cap at 10%. Any unused deductions may be carried forward for five years. This tightened deductibility means corporations will likely become more selective about their philanthropic partnerships.

What does this mean for nonprofits? Expect corporate donors to prioritize organizations that deliver clear return on investment, strong community impact, or alignment with Environmental, Social, and Governance (ESG) goals. The days of tax-benefit-focused appeals are fading. Instead, nonprofits must shift their messaging to emphasize mission-driven outcomes, measurable impact, and strategic value.

Development teams should also pay attention to timing. Since the 1% threshold ties to taxable income, corporations may delay or bunch giving into years with higher profits. Proactive conversations with key corporate donors about fiscal-year planning and multi-year pledge agreements will be essential to securing commitment despite reduced tax incentives. Relationship management, not just solicitation, needs to become a priority. Offering customized impact briefings, tiered recognition programs, and strategic engagement opportunities can help keep corporate giving attractive even when tax benefits diminish.

Individual Donors See a Silver Lining

While corporate giving faces new restrictions, individual donors who don’t itemize deductions gain a new incentive. Beginning in 2026, the OBBBA provides up to $1,000 in charitable deductions for single filers and up to $2,000 for married couples filing jointly who take the standard deduction. This provision runs through the end of 2029 and could encourage broader participation in charitable giving among middle-income donors.

Nonprofits should consider updating donor communications to highlight this benefit and encourage consistent annual giving from supporters who previously saw no tax advantage. While the amounts may seem modest, they represent an opportunity to deepen engagement with a wider base of individual contributors.

Executive Compensation Faces Expanded Scrutiny

The OBBBA also expands the 21% excise tax on nonprofit executive compensation exceeding $1 million. Previously, this tax applied only to the five highest-paid employees. Now, it applies to any employee crossing that threshold, regardless of rank or role.

This change has significant implications for healthcare systems employing highly compensated surgeon leaders, universities with well-paid chief investment officers, or any organization offering deferred compensation payouts to retiring executives. A single year with a large retirement payout, longevity bonus, or contract buyout could unintentionally push compensation over the threshold and trigger unexpected tax liability.

Boards and finance teams need to act now to model compensation exposure, including planned deferred payouts and severance agreements. Consider smoothing payouts over multiple years to avoid spikes that trigger the excise tax. Just as importantly, ensure that compensation committee minutes, benchmarking data, and rationale are thoroughly documented.

Other Notable Changes

Beyond corporate giving and compensation, the OBBBA introduces additional provisions that may affect certain nonprofits. Private colleges and universities face a progressive endowment tax structure based on endowment size per student, with rates ranging from 1.4% to 21%. Private foundations now encounter tiered tax rates on net investment income, ranging from 1.39% to 10% based on asset value. Additionally, nonprofits must now treat certain employee fringe benefits that are not normally deductible by for-profit entities as unrelated business taxable income (UBTI), potentially requiring Form 990-T filings and tax payments on items like transit passes or qualified parking.

Planning for 2026 and Beyond

The OBBBA’s provisions take full effect in January 2026, but waiting until then to respond could result in lost donor dollars, unexpected tax costs, or governance missteps. Organizations that act strategically now will be positioned for success.

At Insero Advisors, we understand the unique pressures nonprofits face. For more than 50 years, we’ve worked with mission-driven organizations to navigate complex regulatory changes and strengthen financial resilience. Our team brings a deep understanding of nonprofit tax compliance, governance best practices, and strategic planning to help you address the OBBBA’s challenges head-on.

We can help your organization conduct a compensation stress test, reassess fundraising strategies, update Form 990 disclosures, and communicate effectively with donors and stakeholders. Our proactive, client-centered approach ensures you won’t just react to these changes but will be prepared to thrive despite them.

Contact our nonprofit team today to discuss how the OBBBA affects your organization and develop a customized action plan for 2026.