The 2026 Tax Law is Coming. And It's About to Change How America Gives
I’ve spent the past week digging through the One Big Beautiful Bill Act (the massive tax overhaul taking effect in 2026) and let’s just say it’s…not light reading.
But tucked between the pages of rate tables and deductions are a few quiet changes that will reshape how Americans give - and how nonprofits raise the money that keeps their missions alive.
It’s not a flashy story. There’s no big headline moment. But make no mistake - this bill is about to change the math behind generosity.
If you lead, fund, or advise a nonprofit, consider this your quick, plain-English briefing on what’s coming and how to stay ahead of it.
1. Small Donors Just Got a Little Love Back
For the first time in years, people who don’t itemize (about 85% of Americans) can get a small deduction for their charitable giving, up to $1,000 for individuals or $2,000 for couples.
Translation: if you give to charity, you might finally see a tiny reward on your tax return again.
It’s not life-changing, but it’s a nice nod from Congress that everyday generosity counts.
If you’re a nonprofit leader, this is your signal to re-engage smaller donors. Those $25, $50, and $100 gifts (the ones that keep your annual fund alive) just got a morale boost.
2. The Fine Print: The New “Deduction Dead Zone”
Now for the part that makes fundraisers groan.
The new law says that even if you do itemize, your donations only start counting after you hit a 0.5% floor of your adjusted gross income. That means the first chunk of your giving (roughly the “starter pack” level) isn’t deductible at all.
On top of that, the tax benefit for high earners is capped at 35% instead of 37%.
So yes, giving is still good for the soul - but it’s slightly less rewarding for your accountant.
For nonprofits, this creates what I call the Deduction Dead Zone: a frustrating middle space where smaller gifts from wealthier donors don’t trigger a tax break. The moral incentive stays; the math doesn’t.
3. Corporations and Foundations: Time to Recalculate
For Corporations
Companies now face a 1% floor (and a 10% ceiling) on their charitable deductions.
In English?
Small donations might not count anymore, so expect fewer $5,000 “community grants” and more bundled, flagship partnerships.
Smart nonprofits will respond by positioning themselves as one of those flagship causes (a partner that helps a company tell its story, not just check a box).
For Foundations
You might’ve heard talk about “raising the excise tax” on foundations. Here’s the translation: foundations already pay about 1-2% on their investment income, and some lawmakers wanted to hike that up (even to 10%) as a way to push more money into the community.
That didn’t make it into the final bill (thankfully), but it’s a growing conversation. Policymakers are starting to see philanthropy as a public trust, not just private generosity, and they’re watching how fast (or slowly) endowments spend their dollars.
🧾 Quick Explainer: What’s an “Excise Tax on Foundations”?
Think of it like a small “service charge” the IRS applies to private foundations based on how much money their investments earn each year.
Right now it’s about 1–2%. Raising it to 10% would be like jumping from a tip to a tab; it would eat into what foundations can give out as grants.
The One Big Beautiful Bill Act didn’t raise it, but the message is clear: the era of quiet endowments is over. Transparency and impact are the new expectations.
4. A Small Bright Spot: Scholarship Giving Gets a Boost
Starting in 2027, donors can get a tax credit (not just a deduction) for giving to certified scholarship-granting organizations (SGOs) - up to $1,700.
That’s big because credits lower your tax bill, not just yor taxable income.
It’s a limited window (and a very specific type of charity), but it’s worth noting - especially for education-focused organizations or anyone looking to create scholarship partnerships.
5. The Million-Dollar Question
Here’s one that’ll make some nonprofit boards sit up straighter:
The law expands the 21% excise tax on executive compensation for nonprofit leaders making over $1 million a year (or big severance packages).
Most organizations won’t feel it immediately, but it’s a reminder to review compensation structures now. The IRS (and donors) are paying closer attention to how “mission dollars” are spent.
6. What Smart Nonprofits Should Do Now
Okay, deep breath. Here’s the practical side.
Educate donors. Most people have no idea these changes are coming. Show them what “smart giving” looks like under the new rules.
Segment your outreach. The incentives now vary dramatically between small, mid-level, and major donors.
Revisit corporate partnerships. Position yourself for fewer, bigger, more strategic investments.
Train fundraisers. They don’t need to be tax lawyers, but they should be able to say, “Here’s how your giving still works for you”.
Stay loud and visible. Philanthropy is being reframed as part of the public trust - your story matters more than ever.
7. The Bigger Picture
This tax law isn’t just about who pays what - it’s about what kind of country we want to be.
When generosity becomes harder to measure, storytelling becomes our best currency.
So yes, the numbers are shifting - but the mission isn’t. Keep showing up, keep building trust, and keep reminding people that gratitude and generosity are still the best investments we can make.