Update May 19 - The House Rules Committee released updated reconciliation bill text with the following changes:

• Removal of provision treating name and logo royalties as unrelated business income.
• Removal of provision on termination of tax-exempt status of terrorist-supporting organizations

Reference to these provisions have been removed from the bill summary below. House Republican leaders plan to put the reconciliation package on the House floor for a vote sometime this week. 

On Monday, May 12, the House Ways and Means Committee Republicans released the tax portion of H.R. 1, “The One, Big, Beautiful Bill.” This is a major budget reconciliation package with significant implications for schools, colleges, and universities.  

Here is a summary of key provisions affecting schools, colleges, and universities:

Increased Excise Taxes on Certain Private College and University Endowments 

While the excise tax on net investment income on certain private college and university endowments would still apply to institutions with endowment values of $500,000 per student or higher, the bill does significantly increase the tax rate as follows:

• $500,000 per student* not in excess of $750,000 per student – 1.4% tax
• $750,000 per student* not in excess of $1,250,000 per student – 7% tax
• $1,250,000 per student* not in excess of $2,000,000 per student – 14% tax
• In excess of $2,000,000 per student* – 21% tax

The bill explicitly exempts religious institutions from this tax.

*The bill defines a full “eligible student” for the purpose of the excise tax to “be a citizen or national of the United States, a permanent resident of the United States, or able to provide evidence from the Immigration and Naturalization Service that he or she is in the United States for other than a temporary purpose with the intention of becoming a citizen or permanent resident.” Under this definition, institutions subject to the tax would not be able to count foreign students for purposes of determining if they are subject to the tax, thus shrinking the denominator and perhaps subjecting more institutions to the tax.

Restoration of a Charitable Deduction for Non-itemizers 

The bill reinstates a modest charitable deduction for non-itemizers:

• $150 for individuals
• $300 for joint filers

This deduction would be available from tax year 2025 through tax year 2028.

Limitation on Tax Benefit of Itemized Deductions

The bill reduces itemized deductions for a taxpayer, including the charitable deduction, by 2/37 of the lessor of:

• the amount of itemized deductions allowable for the year, or
• so much of the taxable income as exceeds that dollar amount at which the 37% tax bracket begins.

This provision is effectively a 35% cap on the value of itemized deductions. 

1% Floor on Deduction for Corporate Charitable Contributions 

Under this provision, corporations would only be able to deduct charitable contributions above 1% of their corporate taxable income. Contributions below the 1% of taxable income threshold would not be deductible.

Tax Credit for Contributions of Individuals to Scholarship 

Granting Organizations The bill introduces a new tax credit for individuals making charitable contributions to tax-exempt organizations that provide scholarships to elementary and secondary school students.

• Individuals can claim a credit up to the greater of 10% of their income or $5,000.
• The tax credit would take effect in tax year 2026, expiring after tax year 2029.
• Note: This tax credit does not apply to contributions to organizations providing scholarships for postsecondary institutions.

Expansion of application of tax on excess compensation at tax-exempt organizations 

The bill expands the tax on excess compensation, now applying a 21% tax on compensation above $1 million for any employee of a tax-exempt organization. This expands on current law, which only applies the tax to the top five highest-compensated employees. This treatment is different than for-profit corporations that are required to pay this tax only on the top 10 compensated employees.

Parking Fringe Benefits 

Subject to Tax The bill increases unrelated business taxable income for tax-exempt organizations by applying UBIT to qualified transportation fringe benefits provided to employees, including parking and transit subsidies. Churches would be exempt from this tax.

OTHER PROVISIONS OF INTEREST

• Increased Excise Taxes on Private Foundation Net Investment Income 
  Certain private foundations would be subject to an increased excise tax on their net investment income. Specifically:
  • Foundations with assets less than $50 million would continue to pay the current 1.39% tax
  • Foundations with assets between $50 million and $250 million would pay a 2.78% tax
  • Foundations with assets between $250 million and $5 billion would pay a 5% tax'
  • Foundation with assets above $5 billion would pay a 10% tax

     This tax only applies to private foundations, not college and university foundations.

• Income from Research Not Made Public Subject to Unrelated Business Income Tax
  Currently, income from research available to the public is exempt from UBIT. However, the bill would subject income from non-public research to UBIT, potentially affecting educational institutions and other nonprofits engaged in private research.
• Permanent Increase in the Estate Tax Exemption Rate
  The bill would permanently increase the unified estate and gift tax exemption to an inflation-indexed $15 million starting in tax year 2026. Currently, the estate and gift tax exemption rate is $12.92 million for tax year (2025) indexed for inflation.

This information is provided as a service to CASE members. It is subject to change as the legislation is updated or changed. CASE is making every attempt to ensure accuracy of information but as the situation is fluid, we encourage you to seek additional information from your government relations staff or counsel.

Updated 13 May 2025