The 4 Most Significant Nonprofit Tax Implications of the OBBBA

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, had substantial implications for many nonprofit organizations. Here’s what nonprofits should be aware of as a result.  

Updates to Excess Compensation and Covered Employees  

The first significant point to note for nonprofit organizations is regarding Excess Compensation. Code Sec. 4960 imposes an excise tax on excess compensation paid to certain highly compensated employees by applicable tax-exempt organizations.   

The excise tax rate is equal to the corporate tax rate (21%) multiplied by the sum of (1) any remuneration in excess of $1 million paid to a covered employee for a taxable year, and (2) any excess parachute payment paid to a covered employee. The term ”covered employee” formerly included the five most highly compensated employees during a given tax year with remuneration in excess of $1 million.   

As a result of OBBBA, the excise tax, payable by exempt organizations on remuneration in excess of $1 million and any excess parachute payments, will no longer be limited to the five most highly compensated current and former employees in the tax year. Instead, a covered employee now includes any employee of an applicable tax-exempt organization that receives remuneration in excess of $1 million.  

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Net Investment Income of Private Colleges and Universities  

The second major implication for nonprofits resulting from OBBBA is the Excise Tax on Net Investment Income of Private Colleges and Universities. Private colleges and universities with at least 3,000 students (previously 500), the majority of whom live in the U.S., are subject to the tax. Those with assets:  

• Between $500,000 per student and $750,000 per student would pay a 1.4% excise tax  
• Between $750,000 and $2 million per student would pay a 4% excise tax  
• Above $2 million per student would pay an 8% excise tax  

This tiered system replaces the previously imposed blanket 1.4% excise tax rate and is effective for tax years ending after December 31, 2025.  

1099 Reporting Requirements  

THE OBBBA also updated the threshold for 1099 reporting requirements. The change applies to all organizations, not just nonprofits. However, after December 31, 2025, the dollar threshold required for reporting a 1099 increases from $600 to $2,000. The threshold will be increased annually for inflation in the calendar years after 2026.   

Proposed Legislation Struck from Final Bill  

Notably, there were several proposed pieces of legislation that did not make it into the final signed bill. The House-passed provision that would have included nonprofit expenses for parking and transportation fringe benefits as unrelated business taxable income (UBIT) was removed from the final version of the bill. Initially, the proposal aimed to tax nonprofits on these expenses, but this measure was widely opposed and subsequently removed during the legislative process.  

Additionally, the final bill does not contain a provision that would have amended 501(p) to allow the Treasury Secretary to designate a nonprofit as a terrorist-supporting organization and revoke its tax-exempt status.   

For private foundations, the provision that would have replaced the current 1.39% excise tax with a tiered tax on net investment income was struck from the final bill.   

Questions? We are Here to Help  

The OBBBA is an expansive piece of legislation that we have attempted to break down here into more digestible information; however, we have only scratched the surface of the full bill.   

Please do not hesitate to reach out to our nonprofit tax team at maner@manercpa.com if you have any questions on how the provisions may impact your organization personally.