GOP tax bill presents challenges for not-for-profits

The House Ways and Means Committee May 12 released the full version of the tax component of the 2025 Republican budget reconciliation bill, or “megabill.” Contained in the tax portion of the bill are several provisions which, if enacted, would have direct effects on not-for-profit businesses and organizations, particularly higher education institutions, social service and advocacy organizations, private foundations, public charities, museums and religious organizations. 

Overall, this legislation includes extensions of key provisions from the Tax Cuts and Jobs Act (TCJA), raises the debt ceiling, and introduces changes to the Inflation Reduction Act. Paired with other sections of the budget reconciliation bill, the full package was approved by the House 215-214 May 22 and now goes to the Senate.

Below, we highlight several provisions of the bill that would most affect not-for-profit organizations if enacted. Practices and situations that would be affected by these provisions should be assessed and monitored closely given the likelihood some or all of them will become law.

• Name and logo royalties treated as unrelated business income: Royalties derived from the use of an organization’s name and logo would be included in unrelated business taxable income (UBTI) for tax years beginning after Dec. 31, 2025. Trade/membership organizations, higher education, research institutions and healthcare would be the most impacted and should review existing royalty and service agreements.
• Tiered excise tax on net investment income of private foundations: A new tiered excise tax structure would apply to private foundations, ranging from 1.39% to 10%, based on asset size. Foundations with assets over $5 billion (including related organizations) would be subject to the top rate. This would apply to tax years beginning after the date of enactment and private foundations should examine their entity structure, investment, expense structure and goals to see if there are planning opportunities to minimize their net investment income.
• Reinstatement of UBTI on fringe benefits (the “parking tax”): This provision reinstates the TCJA-era tax on certain fringe benefits (e.g., employer-provided parking), with an exclusion for church organizations. It would apply to amounts paid or incurred after Dec. 31, 2025. This provision would affect all non-church organizations, and those potentially affected should review their 2018-2019 calculations and plan accordingly.
• Excise tax changes for private colleges and universities: A new tiered excise tax structure would apply to institutions with endowments exceeding $500,000 per student, with rates ranging from 1.4% to 21% (applicable to institutions with $2 million or more in endowment per student). Most international students would be excluded from the denominator in the $500,000-per-student threshold calculation. The bill also overrides the existing exemptions for student loan interest and certain royalty income related to federal funding of intellectual property. Public universities remain exempt with an added exemption for certain religious institutions. It would be effective for tax years beginning after Dec. 31, 2025.  Institutions exceeding the ratio will face a higher tax rate and should recompute their ratio with the modifications to income and student count.
• Expansion of excise tax on compensation over $1 million: Section 4960 would be amended to apply the excise tax to all employees earning over $1 million, no longer limited to only the top five highest-paid employees. This would be effective for tax years beginning after Dec. 31, 2025. All non-profits should review their employee remuneration to determine if there is an increase to the population of employees subject to the tax.
• Phase-out and restrictions on clean energy credits: The bill phases out the Section 48E investment tax credit (fully phased out by 2032), eliminates the Section 30C credit for EV charging stations for property placed in service after 2025, and ends the Section 45W commercial clean vehicle credit for vehicles acquired after 2025. As with the excise tax expansion, clean energy credits reductions would affect all categories of not-for-profit organizations. Those with open projects where energy credits have previously been discussed should analyze their eligible date placed-in-service options and, if possible, take the credit in 2025.
• Reintroduction of charitable deduction for non-itemizers: The bill would include a $150 charitable deduction for individual filers, and a $300 charitable deduction for couples filing jointly. This charitable contribution deduction had previously been available but was sunset after the 2020 and 2021 tax filing periods. Potentially affected entities should evaluate their fundraising campaigns and marketing tools to target larger amounts of individual donors.

Other items to consider from an employer perspective include the following: