The One Big Beautiful Bill Act:
What’s Changing in 2026 for
Charitable Giving?

The legislation known as the One Big Beautiful Bill Act (OBBBA), signed into law in 2025, represents the most sweeping reconfiguration of charitable tax policy since the Tax Cuts and Jobs Act. While headlines have largely focused on its broader economic implications, the law’s impact on philanthropy is equally profound — especially for nonprofits, foundations, and endowments that rely on consistent donor behavior and long-term giving strategies. 

For many organizations, the act presents both an evolving challenge and a chance to strengthen donor engagement. Some incentives expand access to charitable benefits for everyday taxpayers, while others substantially narrow the tax advantages that historically motivated major donors and corporate partners. Understanding this shifting landscape is now essential for strategic planning. 

A 35% charitable deduction cap for high-income donors

Beginning Jan. 1, 2026, taxpayers in the highest 37% tax bracket will see their deduction rate capped at 35%, even though their marginal tax rate is higher. Combined with a new requirement that the first 0.5% of AGI donated is no longer deductible, the result is a noticeable reduction in tax benefit for major philanthropists. 

Research suggests this change could suppress charitable giving by billions over the next decade. For foundations and endowments that depend on significant gifts or multi-year commitments, this shift may influence donor timing, gift bundling, or an increased reliance on donor-advised funds. 

New corporate giving threshold

The OBBBA introduces a 1% income floor for corporate charitable deductions. Corporations must now exceed 1% of taxable income in charitable contributions before receiving any tax benefit. 

This provision may challenge small and mid-size businesses that historically contributed at lower levels, potentially decreasing community-based giving. Larger corporations already surpassing that threshold may instead seek deeper, more strategic partnerships with nonprofits that deliver measurable outcomes. 

Expansion of the standard deduction — and a return of the universal deduction

With the enhanced standard deduction ($15,750 for individuals and $31,500 for married couples) becoming permanent in 2026, fewer donors will itemize. However, the OBBBA offsets this trend by reinstating a limited above-the-line charitable deduction for non-itemizers. 

Individuals may deduct up to $1,000 — and married couples up to $2,000 — in cash donations if they take the standard deduction. This change reintroduces a valuable incentive for everyday donors and could help nonprofits grow their base of reliable, recurring supporters. 

A minimum giving threshold for itemizers

As mentioned above, itemizing donors beginning in 2026 must exceed a 0.5% AGI floor before any charitable contributions qualify for a deduction. This creates a two-step hurdle: the initial portion of giving is non-deductible, and remaining contributions are subject to the 35% cap for high-income donors. 

For organizations that rely heavily on major gifting, stewardship strategies may need recalibration, emphasizing mission impact, legacy conversations, and personalized engagement rather than tax efficiency. 

Private foundations avoid proposed excise tax increases

In a notable victory for the philanthropic sector, earlier proposals to raise the private foundation excise tax — at one point as high as 10% for large foundations — were removed. The final law maintains the 1.39% rate, preserving grantmaking capacity and preventing significant portfolio disruptions. 

School Choice Tax Credit: A transformative opportunity

Starting in 2027, a permanent School Choice Tax Credit allows donors to fund educational scholarships with a 100% federal tax credit, capped at $4.5 billion annually. This mechanism allows donors to redirect tax liabilities directly into scholarship programs, presenting a major opportunity for education-focused organizations and charter networks. 

Operational relief and sunset of key energy credits

The reporting threshold for Form 1099-NEC and 1099-MISC increases from $600 to $2,000 beginning in 2027, easing administrative burdens — particularly for small, volunteer-driven nonprofits. 

However, several clean energy credits will sunset between 2025 and 2027, affecting organizations planning investments in renewable assets or electric vehicles. 

What foundations and nonprofits can do to prepare

1. Communicate early and often. 
   Many donors, especially major givers, will not feel the implications of the new law until filing 2026 returns in 2027. Nonprofits should proactively explain the changes and emphasize how reduced tax incentives may affect mission delivery.
2. Encourage strategic timing of gifts.
   Nonprofits can guide donors to maximize benefits, such as completing multi-year commitments before 2026 or leveraging long-term giving vehicles.
3. Expand donor diversification.
   With major and corporate giving facing headwinds, broadening the small and midsize donor base is crucial. The universal deduction offers a powerful recruitment opportunity for first-time and lapsed donors.
4. Strengthen corporate partnership models.
   Highlighting measurable impact, community visibility, and long-term alignment can help corporations justify contributions beyond the new deduction floor.
5. Prepare internal teams.
   From board briefings to updated acknowledgement templates, organizations should ensure messaging aligns with the new rules and communicates value in clear, donor-centered language. 

Implementation timeline

Nonprofits that prepare ahead of these dates can be better positioned to maintain momentum and protect mission-critical funding. 

• Jan. 1, 2026: Individual giving floor, corporate 1% floor, nonitemizer deduction, and 35% cap take effect. 

• Jan. 1, 2027: School Choice Tax Credit becomes permanent. 

Wins for nonprofits

Several provisions that appeared in earlier drafts of the OBBBA were dropped from the final legislation — a major victory for the nonprofit sector. Among the items removed: 

• Fringe benefit taxes: Proposed taxes on employee perks, such as parking, were eliminated. 

• Research income limits: Restrictions on revenue from nonprofit research were scrapped. 

• Fast-track status revocation: Language that would have allowed quick loss of tax-exempt status with minimal due process was removed. 

• Foundation excise tax hikes: A tiered excise tax structure for private foundations was taken out of the bill. 

FAQs: OBBBA and Nonprofits

What is the One Big Beautiful Bill Act, and how does it affect nonprofits?
The OBBBA is a federal tax law that changes charitable deductions for individuals and corporations, influencing how nonprofits fundraise and plan for 2026 and beyond.

How does the 35% charitable deduction cap work?
High-income taxpayers will see their charitable deductions limited to a 35% rate beginning in 2026, reducing the tax benefits for major donors.

What is the corporate giving 1% income floor?
Corporations must exceed 1% of taxable income in charitable contributions before receiving any deduction. This impact will most likely impact small and midsize businesses.

Do nonitemizers get a charitable deduction under the OBBBA?
Yes. Beginning in 2026, non-itemizers may claim up to $1,000 ($2,000 for joint filers) in charitable deductions in addition to the standard deduction.

How should nonprofits adjust fundraising strategies for the OBBBA?
Organizations should diversify donor bases, increase communications with major donors, strengthen corporate partnerships, and prioritize stewardship for small and midsize supporters.

The OBBBA reshapes charitable giving across all donor segments, presenting both challenges and opportunities for the philanthropic sector. For endowments, foundations, and nonprofits ready to innovate their fundraising strategies, the new landscape can reinforce long-term resilience. By understanding how incentives shift, and by acting before the law takes effect, organizations can help safeguard their missions and continue to inspire generosity in an evolving tax environment. 

For more information on how Mercer Advisors supports nonprofits, contact our endowments and foundations team.