Laura L. Brownfield
General Counsel

One Big Beautiful Bill – May 22, 2025

President Trump’s sweeping 1,000 page tax and spending bill, One Big Beautiful Bill (“OBBB”), cleared a hurdle on Wednesday following a Congressional session lasting nearly 22 hours in which Democrats filed more than 520 amendments in an unsuccessful bid to alter the proposed legislation. A second hurdle was overcome earlier this morning as the House of Representatives voted roughly along party lines to begin a debate that led to the passage of the OBBB later this morning at 6:56 a.m. by a vote of 215-214 with one answering present. The Bill passed. It now heads to the Senate where it will likely undergo significant changes.

OBBB Summary

The measure would make permanent lower tax rates from Republicans’ 2017 Tax Cuts and Jobs Act (“TCJA”) that expire at the end of the year and add new tax breaks for seniors and tipped and overtime wages. All told the tax provisions would increase the deficit by $3.8 trillion over a decade, according to a May 13 Joint Committee on Taxation estimate.

It would partially offset the cost of those policies by limiting eligibility and federal funding for Medicaid and food assistance benefits, modifying student loan repayments, rolling back clean energy tax credits from Democrats’ 2022 climate law, and imposing new immigration fees.

On May 12, 2025, the House Ways and Committee released an updated text of draft tax legislation (the “House Draft Bill”) that was amended last night.

OBBB Provisions Applicable to Nonprofit Organizations

Among the proposed provisions are a few significant changes that could particularly affect nonprofits and individuals working with or for nonprofits:

• Nonprofits would be required to pay tax on the sale or license of any name or logo of the organization (generally at the corporate rate of 21%). Under current law, nonprofits do not ordinarily pay tax on royalties from an unrelated payor—the House Draft Bill would specifically identify gain and royalty income from the name or logo as “unrelated business taxable income.” This provision could have a material impact on sports-related tax exempts and private universities that license their name or logo in connection with collegiate sports activities.
• For private colleges and universities, the current excise tax on net investment income (generally taxed at 1.4%) would be replaced with a multiple-tier tax on net investment income based on the college’s or university’s “student-adjustment endowment”. The tax rate scales up to 21% for a sufficiently large endowment. Additionally, for such colleges and universities, the definition of net investment income would be expanded (to include, for instance, interest on student loans and “Federally-subsidized royalty income”). The provision grants the Treasury with specific authority to prescribe regulations or other guidance, as necessary, to prevent the avoidance of this excise tax.
• For private foundations, the current 1.39% tax rate would be replaced by a tiered tax on net investment income based on the total gross value of the assets held by the foundation—the top rates reaching 10%.
• Nonprofits (other than “churches” or certain “church-affiliated organizations”) would have to pay tax (generally at the corporate rate of 21%) on parking facilities and transportation fringe benefits. The TCJA had originally included similar provisions imposing taxes on such facilities and benefits, but these provisions had been retroactively repealed in 2019.
• The excise tax imposed on significant compensation paid to the 5 highest-compensated employees of an applicable tax-exempt organization (includes public charities) would be expanded to all employees of the organization or any related person or governmental entity. Note that remuneration becomes “excess compensation” when it exceeds $1M or an “excess parachute payment” is made (three times the employee’s average annual compensation).
• A 1% floor would be added for charitable contribution deductions made by corporations.
• A temporary charitable deduction for non-itemizing taxpayers, allowing deductions of up to $150 for single filers and $300 for married couples filing jointly. The deduction excludes contributions to donor-advised funds or supporting organizations and is set to expire at the end of 2028.

All of these provisions would generally come into effect after 2025.  It is, of course, possible that the above changes will not be included in the final tax legislation, e.g. Senate consideration, and any reconciliation between Senate and House versions, although Congressional leadership has stated that the goal is to finalize the legislation by July 4, 2025.

The original draft of the House bill included a provision that would have allowed the Treasury Secretary to designate a nonprofit as a terrorist-supporting organization, revoking its tax-exempt status. This provision was removed from the bill passed by the house on May 22. Advocates have warned that the legislative effort – which failed to pass as a stand-alone bill last year (H.R.6408 and H.R.9495) – could be abused to crack down on groups that the administration does not agree with, particularly nongovernmental organizations that support Palestinian rights. There is speculation that the section may have been removed to avoid additional controversy for the must-pass bill.

OBBB Provisions Applicable to Individual Taxpayers

OBBB permanently extends the rates and brackets of the 2017 individual tax cuts. This provides certainty individuals and stability to this portion of the tax code. The bill permanently extends the larger standard deduction and the alternative minimum tax threshold that were only temporary in the TCJA. These two provisions have simplified the tax code for millions of taxpayers.

• Makes permanent the lower income tax rates in TCJA (the maximum rate is 37%) that are currently due to expire at the end of 2025. (Cost: $2.2 trillion)
• Extends the increased alternative minimum tax exemption. (Cost: $1.4 trillion)
• Extends the standard deduction and boosts it by an additional $1,000 to $1,500 until 2029. In other words, for tax years of 2025 to 2028, the standard deduction is increased to $26,000 for joint filers (from $24,000), to $19,500 for head of household filers (from $18,000), and to $13,000 for all other filers (from $12,000). (Cost: $1.3 trillion)
• Extends and increases tax break for owners of “pass-through” businesses, such as sole proprietorships and LLCs (Cost: $809 billion)
• Expands the Child Tax Credit to $2,500 from $1,000 until 2029, and keeps it at $2,000 after that, indexed to inflation. (Cost: $797 billion)
• Raises and makes permanent (and inflation-adjusted) the estate tax exemption to $15 million beginning in 2026. (Cost: $212 billion)
• Exempts federal taxes on overtime pay until 2029. (Cost: $124 billion) Note: the House Bill is structured as a deduction not full exclusions of tips from taxable income. Deductions are allowed for overtime compensation for itemizers and non-itemizers for tax years 2025 through 2028.
• Exempts federal taxes on some tipped income until 2029. (Cost: $40 billion) Note: the House Bill is structured as a deduction. Taxpayers earning $160,000 or less in 2025 (adjusted in the future for inflation) are permitted a deduction for cash tips from an occupation that “traditionally and customarily received tips” to the extent the gross receipts of the taxpayer from the trade or business of receiving the tips exceeds the sum of the cost of goods sold allocable to the receipts and other expenses, losses, or deductions properly allocable to those receipts. This deduction is allowed for tax years 2025 through 2028.
• Exempts taxes on interest payments on loans for domestic autos until 2029. (Cost: $58 billion) Note: the House Bill is structured as a deduction (up to $10,000) of interest payments on car loans from 2025 through 2028. These deductions are allowed for itemizers and non-itemizers. The deduction phases out for single taxpayers earning $100,000 ($200,000 for joint returns).
• Extends other 2017 business tax breaks. (Cost: $99 billion)
• Creates a new $4,000 deduction for seniors. (Cost: $72 billion)
• Exempts up to $5,000 for contributions to scholarship funds for private schools. (Cost: $20.4 billion)
• Allows parents to contribute up to $5,000 tax-free each year to “Trump Accounts” to be used for a child’s school and other costs when they reach adulthood. (Cost: $17.2 billion)
• Allows taxpayers to deduct up to $40,000 for state and local tax (“SALT”) payments, up from $10,000 now.
  Note: Late last night, lawmakers agreed that the SALT cap on the deduction would rise to $40,000 from $10,000 but be phased out for taxpayers making more than $500,000. The $40,000 deduction cap and $500,000 income limit would increase by 1 percent through 2033. Regardless of income level, all taxpayers would still be guaranteed a SALT deduction of $10,000. Married couples would get the same deductions as individual taxpayers — despite a long campaign from SALT Republicans to double the deduction cap for joint filers.
• Alters itemized deductions. The Bill permanently removes the overall limitation on itemized deductions known as the Pease rule, and is replaced by a complicated approach to reduce allowable itemized deductions by 2/37 of the lesser of 1) the amount of itemized deductions and 2) the amount of taxable income of the taxpayer for the taxable year that exceeds the dollar amount at which the 37% bracket begins with respect to such taxpayer (the 37% bracket begins at $751,600 for married couples filing joint returns in 2025). Effectively, this rule creates an additional 39% tax bracket equal to itemized deductions in excess of the 37% bracket threshold.
• Pass-through entity tax deductions are denied for individuals who perform services in the fields of health, law, accounting actuarial science, performing arts, consulting, athletics, financial services, brokerage services, investing services, investment management services, and trading or dealing in securities, partnership interests, or commodities, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees.

Congressional Budget Office Analysis of OBBB

The Congressional Budget Office released its first comprehensive estimate of the House’s Fiscal Year (FY) 2025 reconciliation bill – the One Big Beautiful Bill Act – finding that before accounting for interactions, the bill would add $2.3 trillion to deficits over the next decade. Incorporating our estimates of interactions and the adjustments announced by House leadership Monday, we estimate the bill would add $3.1 trillion to the debt as written.

OBBB will add $3.8 trillion to the $36.2 trillion U.S. debt burden over the next decade, according to the nonpartisan Congressional Budget Office distributional analysis which estimates that in general in general, resources would decrease for households in the lowest decile (tenth) of the income distribution, whereas resources would increase for households in the highest decile.

Charitable Act (S.317, H.R. 801) – January 29, 2025

This Bill was introduced in late January in both the House and the Senate. If passed, beginning in tax year 2026 or 2027, the deduction under the bill shall be equal not exceed an amount equal to 1⁄3 of the amount of the standard deduction with respect to such individual for such taxable year. This bipartisan legislation if passed would allow non-itemizing taxpayers to deduct up to $5,000 in charitable gifts per year ($10,000 for joint filers).

Trump Executive Orders and White House Memorandum

Below is a summary of the relevant orders and legal principles that may affect nonprofit organizations.

EO 14173 of January 31, 2025, targets “illegal DEI” efforts in the federal government and in the private sector CFSEM is a target as it is a foundation with assets in excess of $500 million. The EO charges the heads of all federal agencies with the support of the Attorney General with reporting to the Trump administration: (1) recommendations to “deter DEI programs or principles (whether specifically denominated “DEI” or otherwise) that constitute illegal discrimination or preferences,”  (2) strategies to encourage the private sector to end illegal DEI discrimination and preferences and comply with all Federal civil-rights laws, and (3) guidance on potential regulatory action.

EO 14168 of January 20, 2025, addresses gender ideology and applies to the federal government and its agencies. There may be implications for your organization’s employment policies and procedures. The EO charges agencies to enforce laws governing “sex-based rights, protections, opportunities, and accommodations to protect men and women as biologically distinct sexes.”  The Attorney General is directed to issue guidance “to ensure the freedom to express the binary nature of sex and the right to single-sex spaces in workplaces.”

Memorandum for Heads of Executive Departments and Agencies: Temporary Pause of Agency Grant, Loan, and Other Financial Assistance Programs, dated January 27, 2025, directs that all federal agencies temporarily pause all activities related to obligation or disbursement of all federal financial assistance and other relevant agency activities that may be implicated by the executive orders, including but not limited to nongovernmental organizations, DEI, gender ideology, and the green new deal.

NOTE: This material was developed by Community Foundation for Southeast Michigan. It is published with the understanding that neither the publisher nor the author is engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a professional advisor should be sought.