The House of Representatives recently passed the One Big Beautiful Bill Act. While there are many implications to for-profit corporations, there are also impacts on not-for-profit organizations. This bill is not finalized, and changes could take place prior to the final bill being signed.
This article will address what we know so far, and we will continue to keep you appraised of future developments as they occur.
Excise Tax on Investment Income of Certain Private Colleges and Universities
A higher tax will be imposed on each applicable educational institution using a tax percentage of the net investment income for the taxable year. Applicable educational institutions have at least 500 tuition-paying students during the prior year, more than 50% of the tuition paying students are located in the United States, are not a state college or university, and are not a qualified religious institution.
This percentage varies based on the value of the student adjusted endowment. Student adjusted endowment is the aggregate fair market value of the assets of the institution, other than those assets which are used directly in carrying out the institution’s exempt purpose, divided by the number of eligible students of the institution.
The tax percentages will be:
- 1.4% for student adjusted endowments of $500,000 - $750,000
- 7% for student adjusted endowments of $750,000 - $1,250,000
- 14% for student adjusted endowments of $1,250,000 - $2,000,000
- 21% for student adjusted endowments of $2,000,000+
This tax would be effective for taxable years beginning after December 31, 2025.
Tax on Net Investment Income of Certain Private Foundations
The current 1.39% tax rate on net investment income of certain private foundations will be amended to use applicable percentages based on the assets of the private foundation.
Amended tax rates will be:
- 1.39% for private foundations with assets of less than $50 million
- 2.78% for private foundations with assets of $50 million - $250 million
- 5% for private foundations with assets of $250 million - $5 billion
- 10% for private foundations with assets greater than $5 billion
The assets will be determined by the aggregate fair market value of the private foundation’s assets as of the close of the taxable year.
This tax amendment will apply to taxable years beginning after the enactment date of the act.
Unrelated Business Taxable Income Changes
The bill increases unrelated business taxable income by amounts paid for transportation fringe or any parking facility used in connection with qualified parking which is not directly connected with an unrelated trade or business that is regularly carried out by the organization and for which a deduction is not allowable. This will not apply to organizations that are church affiliated.
In addition, the exclusion of research income from unrelated business taxable income will be limited to research activities that are publicly available.
Both of these amendments would be effective for amounts paid or incurred after December 31, 2025.
Excess Compensation
The bill also expands the 21% excise tax imposed on significant (greater than $1 million) compensation from the organization’s five highest-compensated employees to all significantly compensated employees.
This provision would be effective for taxable years beginning after December 31, 2025.
Stay Informed and Connect with Our Not-for-Profit Specialists
As mentioned, this bill has not been passed by the Senate or signed in final form. We will continue to keep you updated. If you have any questions about this pending legislation, please reach out to Katie Galaska, Director, Not-for-Profit Industry Group, or any member of our Not-for-Profit Industry Group.