OBBBA Changes for Charities: New Rules Starting 2026

The One, Big, Beautiful Bill Act (OBBBA) signed on July 4, 2025, brings significant changes that will reshape how your nonprofit operates and how your donors give. These aren't just minor tweaks to existing rules—they're substantial shifts that could affect your organization's compensation strategies, fundraising efforts, and overall financial planning.

Understanding these changes now gives you time to adapt your policies and communicate effectively with donors before the new rules take effect in 2026. Let's break down what matters most for your organization.

Expanded Excess Compensation Tax Affects More Employees

The excise tax on excessive compensation just got broader. Since 2018, nonprofits have faced a 21% excise tax on compensation exceeding $1 million paid to their five highest-paid employees or former employees. This was manageable for most organizations since it targeted only a small group.

Starting in 2026, that limitation disappears. Any employee earning over $1 million could trigger the excise tax, regardless of where they rank in your compensation hierarchy. The tax applies to both salary and bonuses exceeding the $1 million threshold, plus any excess parachute payments.

While this expansion primarily affects large nonprofits with multiple high earners, smaller organizations should still review their compensation structures. If you're planning significant salary increases or have employees approaching the $1 million mark, consider how this change might impact your budget.

Mixed News for Charitable Contribution Deductions

Your donors face a mixed bag of changes that could influence their giving patterns. The good news? Non-itemizing taxpayers will finally get a charitable deduction. Beginning in 2026, individuals can deduct up to $1,000 in cash donations ($2,000 for married couples filing jointly), even if they don't itemize their deductions.

This opens up tax benefits to millions of donors who currently receive no deduction for their charitable gifts. Since the higher standard deduction is now permanent, most taxpayers will continue to be non-itemizers, making this provision particularly valuable for broadening your donor base.

However, itemizing donors face new restrictions. The OBBBA introduces a 0.5% of adjusted gross income (AGI) floor for charitable deductions. This means donors can only deduct contributions that exceed 0.5% of their AGI. A donor with $100,000 in AGI won't be able to deduct their first $500 in charitable gifts.

For corporate donors, there's a similar 1% floor based on taxable income, though corporations can carry forward disallowed deductions for up to five years.

Estate Planning Changes May Reduce Major Gift Incentives

Wealthy donors might have less motivation to make large charitable gifts under the new law. The OBBBA makes permanent the high lifetime gift and estate tax exemption that was set to expire after 2025. With the exemption rising to $15 million in 2026 and adjusting annually for inflation, fewer wealthy individuals will face estate taxes.

This permanence removes some urgency around charitable estate planning strategies. Previously, donors might have felt pressure to make significant charitable gifts to reduce their taxable estates. With higher permanent exemptions, that pressure diminishes.

Additional Considerations for Specific Nonprofits

Educational institutions face their own challenges under the OBBBA. Private colleges and universities with substantial endowments will see higher excise taxes on their net investment income. If your organization falls into this category, factor these increased costs into your financial planning.

Other specialized nonprofits may encounter additional provisions depending on their structure and activities. Each organization should review the full scope of changes relevant to their specific situation.

Preparing for Implementation

These changes take effect in 2026, giving you time to prepare. Start by reviewing your current compensation policies and donor communication strategies. Consider how the new deduction limits might affect different segments of your donor base and adjust your fundraising approach accordingly.

For high-compensation employees, explore whether restructuring compensation packages makes sense under the new rules. For donor relations, develop messaging that explains how the changes might affect their giving strategies while emphasizing the continued value of their support.

Moving Forward with Confidence

The OBBBA represents significant changes, but they're not insurmountable. Organizations that understand these provisions and adapt proactively will continue to thrive. The key is taking action now rather than waiting until the changes take effect.

At SD Mayer & Associates, we help nonprofits navigate complex tax changes while keeping their mission front and center. Contact us to discuss how these OBBBA provisions specifically affect your organization and develop strategies that protect your financial health while advancing your charitable goals.