On July 4, 2025, President Trump signed the One Big Beautiful Bill into law. While there are many implications to for-profit corporations, there are also impacts on not-for-profit organizations.
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 must have had at least 3,000 tuition-paying students during the prior year, with more than 50% of those tuition paying students located in the United States, and must not be a state college or university.
This percentage varies based on the value of the student adjusted endowment. A 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
- 4% for student adjusted endowments of $750,000 - $2,000,000
- 8% for student adjusted endowments of $2,000,000+
This tax will be effective for taxable years beginning 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. The population is limited to individuals who were employees of the organization during taxable years beginning after December 31, 2016.
This provision will be effective for taxable years beginning after December 31, 2025.
Provisions Not Included in the Final Legislation
Previous versions of the bill included provisions that were ultimately excluded from the final legislation and therefore were not enacted. These excluded provisions included:
- Amendments to the tax rates on net investment income of certain private foundations
- Increases to the unrelated business taxable income by amounts paid for transportation fringe benefits
- Providing broad discretion to the Secretary of the Treasury to suspend the tax-exempt status of organizations deemed to have provided material support or resources to a terrorist organization
Stay Informed and Connect with Our Not-for-Profit Specialists
If you have any questions about this new legislation, please reach out to Katie Galaska, Director, Not-for-Profit Industry Group or any member of our Not-for-Profit Industry Group.