The absurdly-named One Big Beautiful Bill Act (H.R. 1), signed into law by President Trump on July 4, 2025, represents one of the most significant legislative changes in generations. While much attention has been given to the implications for society at large:

• ~ $4 trillion increase to the deficit

• Dramatic reduction of the social safety net, with cuts to critical programs

• Increased spending on defense, border security, and mass deportation efforts

However, precious little reporting has been done on the massive impact this law will have on the impact sector. The truth is this law will bring about the biggest impact on nonprofits and philanthropy in decades. Namely, the BBBA will reduce resources available to nonprofit organizations by a net $7 billion over 10 years while dramatically increasing demand for their services, fundamentally reshaping how the social impact sector operates. 

The BBBA combination of tax cuts, immigration enforcement expansions, and social safety net reductions that together create unprecedented challenges for organizations serving America's most vulnerable populations.

Two-Faced Legislation

The bill's impact stems from its dual nature: while it includes beneficial provisions like a permanent universal charitable deduction, expected to generate $74 billion in new giving over 10 years, it simultaneously introduces restrictions and cuts that will reduce nonprofit resources by $81 billion. 

More critically, the legislation's $1.3 trillion in cuts to Medicaid and SNAP programs will leave over 16 million Americans without essential services, forcing nonprofits to fill gaps with diminished resources. Combined with $170 billion in immigration enforcement funding that will strain organizations serving immigrant communities, the bill creates a perfect storm of increased demand and reduced capacity.

Tax provisions create mixed charitable giving landscape

The legislation's charitable giving provisions present a complex picture of competing incentives and restrictions. The most significant positive change is the permanent universal charitable deduction, allowing non-itemizing taxpayers to deduct up to $1,000 for individuals and $2,000 for married couples filing jointly. This provision affects approximately 90% of taxpayers who take the standard deduction rather than itemizing, potentially democratizing charitable giving incentives. The Joint Committee on Taxation estimates this will generate $73.75 billion in new charitable contributions over 10 years.

However, these gains are offset by several restrictions that disproportionately affect larger donors and corporations. High-income taxpayers in the 37% tax bracket now face reduced deduction values, with the tax benefit capped at approximately 35 cents per dollar donated rather than the previous 37 cents. Additionally, a new 0.5% floor means individual itemizers can only deduct charitable contributions exceeding 0.5% of their adjusted gross income, creating a threshold that may discourage smaller charitable gifts among itemizers.

Corporate charitable giving faces the most dramatic restriction through a new 1% floor requirement. Corporations must now contribute at least 1% of their taxable income to qualify for any charitable tax deduction. Independent Sector research anticipates a chilling effect that will reduce corporate charitable giving by approximately $4.5 billion annually. This change fundamentally alters the corporate philanthropy landscape, potentially forcing companies to either increase their giving significantly or lose tax benefits entirely.

The legislation also permanently increases estate and gift tax exemptions to $15 million per individual ($30 million for married couples), indexed for inflation beginning in 2026. While beneficial for wealthy families, this reduces pressure for charitable estate planning strategies that have historically driven major philanthropy. Private foundations face expanded executive compensation taxes, with the 21% excise tax now applying to all employees earning over $1 million rather than just the top five, while donor-advised funds are explicitly excluded from the universal charitable deduction benefit.

Social safety net cuts drive unprecedented service demand

The bill's social safety net reductions represent the largest cuts in U.S. history, creating massive new demand for nonprofit services. Medicaid faces $1.02 trillion in cuts over 10 years, with 10.5 million people losing enrollment and 7.8 million becoming entirely uninsured by 2034. The cuts stem from multiple provisions including work requirements affecting 5.2 million people, reduced retroactive coverage periods, and state funding restrictions that will force difficult choices about program scope.

Work requirements begin December 31, 2026, requiring 80 hours monthly of work or community engagement for adults aged 19-64, with limited exemptions for parents of children under 14, disabled individuals, and veterans with disabilities. States receiving enhanced federal matching funds for Medicaid expansion will see their populations particularly affected, with Washington state facing a 26% enrollment decline and Virginia experiencing 21% reductions. These cuts will overwhelm federally qualified health centers, community health centers, and free clinics that serve as the healthcare safety net.

SNAP (food assistance) cuts of $295 billion over 10 years will remove 5 million people from the program, including over 2 million children who will lose substantial benefits. The largest single cut requires states to match federal SNAP funding at rates of 5-25% based on error rates, creating a $27 billion hole in state budgets while forcing 1.3 million people off the program monthly. Work requirements expand to ages 18-64, exemptions are reduced, and 420,000 children will lose automatic eligibility for free school meals.

The healthcare coverage crisis extends beyond Medicaid through the expiration of enhanced ACA premium tax credits at the end of 2025, which were not extended in the legislation. This will leave 4.2 million additional Americans uninsured by 2034, with premium increases averaging 93% for subsidized enrollees. Combined with new marketplace restrictions and verification requirements, the total uninsured population could increase by 16 million people, dramatically straining hospital systems already operating on thin 1.2% median margins.

Immigration enforcement provisions challenge serving organizations

The legislation allocates approximately $170 billion for immigration enforcement, representing the largest single investment in border security and interior enforcement since the Department of Homeland Security's creation in 2003. Immigration and Customs Enforcement (ICE) receives $75 billion, including $45 billion for detention capacity expansion that will increase bed space from 56,000 to over 116,000, and $29.9 billion for enforcement operations including hiring 10,000 additional officers.

U.S. Customs and Border Protection receives over $70 billion for physical barrier construction, technology improvements, and personnel expansion. This includes $46.55 billion for constructing 701 miles of primary wall and additional barrier systems, plus $4.1 billion to hire 3,000 new Border Patrol agents and 5,000 Office of Field Operations officers. The unprecedented funding reflects the administration's enforcement-first approach to immigration policy.

New immigration fees create significant barriers for vulnerable populations while straining nonprofits providing legal services. Asylum seekers face a $100 application fee plus $550 for initial work authorization and $275 for six-month renewals. These fees are indexed to inflation and have no fee waiver provisions, forcing nonprofits to either subsidize costs or watch clients forgo legal protections. Appeal fees increase from $110 to $900, creating additional strain on legal aid organizations' budgets.

The legislation restricts benefit eligibility for mixed-status families, with 12-17 million people at risk of losing healthcare coverage and food assistance limited to citizens and lawful permanent residents only. A 3.5% remittance tax on money transfers by non-citizens affects workers supporting families overseas, while the Child Tax Credit requires Social Security numbers, making 4.5 million children ineligible despite most being U.S. citizens with undocumented parents.

Different philanthropic entities face varied impacts

Individual donors experience the most complex changes, with the universal charitable deduction providing new incentives for 90% of taxpayers while restrictions reduce benefits for high-income itemizers. The 0.5% floor particularly affects middle-income itemizers who may find their modest charitable contributions no longer qualify for deductions. However, the permanent nature of the universal deduction creates long-term stability for organizations targeting broader donor bases.

Corporate donors face the most dramatic restructuring through the 1% floor requirement. Companies giving below this threshold must choose between significantly increasing their charitable contributions or losing tax benefits entirely. The median corporate giving rate of 0.92% means most companies will need to increase giving by at least 9% to maintain deductibility. This could benefit organizations with strong corporate relationships but harm those dependent on companies unable or unwilling to meet the new threshold.

Private foundations encounter increased operating costs through expanded executive compensation taxes and potential changes to excise tax structures. While the final legislation removed proposed tiered excise taxes that would have reached 10% for foundations with over $5 billion in assets, the expanded compensation tax affects all employees earning over $1 million rather than just the top five. Foundations may need to restructure compensation packages or accept higher tax burdens, potentially reducing available grantmaking funds.

Donor-advised funds benefit from avoiding the most restrictive provisions while being excluded from the universal charitable deduction. Their continued exemption from private foundation taxes and minimum distribution requirements makes them relatively more attractive, though the exclusion from the universal deduction may slow growth among smaller donors who could previously claim deductions for DAF contributions.

Expert analysis reveals sector-wide transformation

Nonprofit sector leaders describe the legislation as creating fundamental changes requiring strategic adaptation rather than incremental adjustments. The National Council of Nonprofits estimates the net $7 billion resource reduction will "negatively impact nonprofit organizations' ability to provide essential services" precisely when demand is increasing. This assessment reflects the dual challenge of reduced funding and increased service obligations.

Independent Sector's commissioned Ernst & Young study projects annual corporate giving reductions of $4.5 billion, while the Council on Foundations led a coalition of 2,300 charitable nonprofits urging Congress to remove harmful provisions. The unified sector response demonstrates unusual consensus about the legislation's negative impacts, with traditionally diverse organizations agreeing on the need for protective advocacy.

Academic research supports these concerns, with Indiana University's Lilly Family School of Philanthropy documenting that the previous Tax Cuts and Jobs Act reduced charitable giving by $20 billion in its first year. The school's Philanthropy Panel Study tracked households switching from itemizing to standard deductions, finding average decreases of $880 per household. This research suggests the current legislation's restrictions on itemizers could produce similar or larger reductions.

Policy research organizations provide mixed assessments, with the Brookings Institution finding the bill will have "modest" economic effects "swamped by its significant negative impact on federal finances". The Urban-Brookings Tax Policy Center emphasizes that reducing itemizers significantly decreases charitable contributions based on tax price elasticity studies showing charitable giving responses ranging from 0.6 to over 2.0 for each dollar of tax benefit change.

The Committee for a Responsible Federal Budget estimates the legislation will add $2.4 trillion to primary deficits over 10 years, potentially limiting future government support for social programs and increasing nonprofit service demand. This fiscal impact compounds the direct effects on charitable giving, creating long-term sustainability challenges for the social impact sector.

Financial impact reveals resource constraints ahead

The legislation's financial impact on nonprofits stems from multiple converging factors that create both immediate and long-term challenges. The verified $74 billion in new charitable giving from the universal deduction is overwhelmed by $81 billion in reduced resources, creating a net negative impact of $7 billion over 10 years. This calculation, based on Joint Committee on Taxation estimates, represents the most comprehensive analysis of the bill's charitable giving effects.

Healthcare nonprofits face the most severe financial strain through the combination of increased demand and reduced Medicaid funding. With $800 billion in Medicaid cuts and 11.8 million Americans losing coverage, federally qualified health centers and community health centers must provide significantly more uncompensated care while hospital systems already operating on 1.2% median margins face potential closures. The Congressional Budget Office projects these cuts will disproportionately affect rural areas where hospitals serve as economic anchors.

Social service organizations confront similar challenges as SNAP cuts force 5 million people to seek food assistance from nonprofits. Food banks must prepare for sustained increases in demand while facing potential reductions in corporate and foundation support. The $295 billion in SNAP cuts over 10 years represents resources that nonprofits cannot realistically replace through charitable giving, creating permanent service gaps.

Immigration-serving organizations face operational challenges from enforcement expansions and benefit restrictions affecting 12-17 million people. Legal aid organizations must absorb increased costs as clients cannot afford new fees totaling $925 for basic asylum and work authorization applications. The elimination of fee waivers forces nonprofits to choose between subsidizing client costs or denying services, fundamentally altering their operational models.

The geographic distribution of impacts creates regional variations in nonprofit strain, with Washington state facing 17% federal spending cuts and Virginia experiencing 21% enrollment losses in Medicaid. Rural areas face disproportionate impacts as hospital closures eliminate both healthcare access and economic stability, while urban areas see concentrated demand increases in already-stressed safety net systems.

Strategic adaptation requires comprehensive organizational response

Nonprofits must implement multi-faceted strategies addressing both immediate compliance requirements and long-term sustainability challenges. Revenue diversification becomes essential, with organizations needing to reduce dependence on traditional funding sources while building resilience against future policy changes. The universal charitable deduction creates opportunities to engage the 90% of taxpayers who don't itemize, requiring new marketing strategies and donor cultivation approaches.

Fundraising strategy adjustments must address different donor segments' changing incentives. Organizations should develop targeted campaigns for non-itemizers who can now claim deductions, while maintaining relationships with major donors facing reduced tax benefits. Corporate fundraising requires helping companies understand how charitable giving can meet the new 1% threshold requirement, potentially creating partnership opportunities with corporations needing to increase their giving.

Operational adaptations must prepare for increased service demand from safety net cuts affecting 16+ million Americans. Organizations should develop coalition service models to share resources and avoid duplication, while investing in technology to improve efficiency and reduce administrative costs. Community partnerships become crucial for leveraging resources and coordinating responses to increased demand.

Legal compliance and risk management require immediate attention to new executive compensation taxes and charitable deduction floors. Organizations must review all employee compensation packages for potential excise tax implications, update reporting processes for new tax provisions, and revise compensation policies to minimize tax impacts while maintaining competitive packages.

Advocacy and coalition building remain essential for protecting sector interests and educating policymakers about nonprofit contributions. Organizations should participate in unified sector advocacy through the National Council of Nonprofits, Council on Foundations, and Independent Sector while engaging with local officials about increased demand for services. Public education about nonprofits' role in filling gaps left by government cuts becomes crucial for maintaining community support.

Long-term implications reshape sector sustainability

The One Big Beautiful Bill Act represents more than temporary policy changes; it signals a fundamental shift in the relationship between government and nonprofit sectors. The legislation's emphasis on tax cuts over social spending creates a "crowding out" effect where reduced government services theoretically should be replaced by increased private philanthropy, but the math doesn't support this assumption. The $7 billion net reduction in nonprofit resources over 10 years occurs alongside $1.3 trillion in government social spending cuts, creating an impossible replacement challenge.

The permanence of key provisions means organizations must adapt to a new structural reality rather than temporary adjustments. The universal charitable deduction, corporate giving floors, and individual deduction restrictions are permanent features that will shape giving patterns for decades. This requires long-term strategic planning rather than short-term crisis management.

Sector consolidation and collaboration may accelerate as organizations face resource constraints and increased demand. Smaller nonprofits may need to merge or form coalitions to achieve sustainable operations, while larger organizations may need to expand their service footprints to address unmet community needs. This consolidation could improve efficiency but may reduce the sector's diversity and community connections.

The legislation's impact extends beyond immediate financial effects to fundamental questions about civil society's role in American democracy. As government retreats from social service provision while nonprofit resources remain constrained, communities may face service gaps that threaten social cohesion and economic stability. The nonprofit sector's ability to adapt and advocate for supportive policies will determine whether these challenges lead to innovation and resilience or to reduced capacity and community harm.

TL;DR:

The One Big Beautiful Bill Act creates the most significant transformation of the nonprofit landscape since the Tax Reform Act of 1986. While the legislation includes beneficial provisions like the universal charitable deduction, its overall impact reduces nonprofit resources by $7 billion over 10 years while increasing service demand by 16+ million Americans losing government benefits. This fundamental mismatch between resources and needs requires comprehensive organizational adaptation and sustained advocacy for more supportive policies.

Success in this new environment demands proactive revenue diversification, strategic coalition building, and enhanced advocacy efforts. Organizations that adapt quickly to serve non-itemizing donors, develop collaborative service models, and maintain strong community partnerships will be best positioned to continue their missions. However, the scale of change requires sector-wide coordination and continued policy advocacy to ensure America's nonprofit organizations can fulfill their essential role in supporting vulnerable communities and strengthening civil society.

The legislation's legacy will depend on how effectively nonprofit organizations adapt to these challenges while maintaining their commitment to serving those most in need. The sector's response in the coming years will determine whether these policy changes ultimately strengthen or weaken America's social fabric and democratic institutions.

So, what now?

The social impact sector is certainly no stranger to turmoil, and the risk of government grants drying up has been in the backs of most of our minds for years. Unfortunately, it appears the chickens are coming home to roost. Nonprofits must invest in their own resilience, double-down on fundraising, use data to improve their operations and measure their impact, and take good care of their people. 

As we outline in the follow-up to this article, philanthropy can and must rise to the occasion. They must increase investments high-impact programs and organizations that support the most vulnerable people in their communities. They must support operational expenses and provide multi-year commitments that will help ensure stability within the organizations they support. They must focus their investments on the most effective organizations, delivering the deepest and most durable impact, and they must trust the teams doing the work. 

None of this will be easy of course, but it’s times like this when the convergence of massive and inexorable forces creates a crucible, from which real greatness and positive transformation can emerge. To paraphrase a favorite of ours, Mick Ebeling, “If not us, who? If not now, when?”

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Altruous helps philanthropic organizations identify high-impact nonprofits and design strategic giving approaches that create measurable social outcomes during both stable and crisis periods. Our platform provides the research and analysis needed to move from traditional charity to strategic social investment. Because community resilience requires both immediate response and long-term partnership. Contact us at impact@altruous.org to learn more, and continue the conversation. We’d love to hear from you.