07/22/2025

One Big Beautiful Bill Tax Updates: NFPs and Tax-exempt Entities

Understanding these changes now can help you avoid surprises later

The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4. Several versions of the bill have been talked about for weeks leading to some confusion about what ultimately made it into the final bill. Fortunately, some of the less popular provisions did not become law. However, the final version of the OBBBA includes provisions that affect charitable giving, executive compensation, endowment taxation and more. Understanding these changes now can help you avoid surprises later and seize new planning opportunities.

Excise Tax on University Endowments

Private universities pay excise taxes on the earnings of their endowment funds. The way these taxes are calculated underwent three major changes. The definition of taxable income was expanded to include student loan interest and federally subsidized royalty income. The tax rate went from a flat rate of 1.4 percent to a tiered structure topping out at 8 percent. Additionally, the threshold for applicability increased from 500 to 3,000 tuition-paying students. This means that while some universities will have steep tax increases, others may fall below the 3000 student threshold and no longer be subject to the tax. It is estimated around 30 institutions will be impacted.

Excess Compensation Excise Tax

Previously tax-exempt organizations had to pay an excise tax of 21 percent on the amount of compensation in excess of $1 million for their top-five paid employees only. Under the new rules, this tax applies to all covered employees who earn over $1 million, not just the top five, expanding the scope of the provision significantly.

Please select this link to read the complete article from OSAP mission partner Clark Schaefer Hackett (CSH).