2025 Budget Reconciliation Issue Paper: Tax Provisions

In July, the Jewish Federations of North America (JFNA) released its "2025 Budget Reconciliation Issue Paper: Tax Provisions" to provide a summary of tax changes and implications resulting from the Federal government's passing of the "One Big Beautiful Bill Act" ("OBBBA").

The JCF is sharing this summary below for your reference, and we also JFNA for this insightful recap.

(Please note that the JCF does not provide accounting, financial, or legal advice, please consult with your trusted advisor as needed.)

For more information on the following tax provisions outlined in the OBBBA, please feel free to contact JCF Executive Director David Snyder at 856-673-2571 or dsnyder@jfedsnj.org:

2025 Budget Reconciliation Issue Paper: Tax Provisions

The “One Big Beautiful Bill Act” (“OBBBA”) (note that this is not the official title of the bill signed into law by President Trump on July 4, 2025) extends the 2017 Tax Cuts and Jobs Act (TCJA) tax cuts and makes numerous other important changes to individual taxes as well as other provisions that will impact tax-exempt organizations and their donors. Some of the provisions are effective for the current tax year and are made permanent. Others have different effective dates and are temporary (expiring in 2028 or later). The major provisions are described below.

Individual Taxes

• Tax Rates: OBBA makes the TCJA tax rates permanent and indexes the tax bracket amounts inflation starting in 2026;

• Standard Deduction: OBBBA makes the TCJA increases in the standard deduction

increases permanent. For 2025, the standard deduction will be $15,750 single, $31,500 for

married filing jointly;

Observation: The increased standard deduction limits the number of taxpayers who itemize their deductions (currently approximately 9 percent of all filers) and claim the charitable contribution deduction but see the discussion of the state and local tax deduction below for another potential change regarding the number of itemizers.

• State and Local Tax Deduction: OBBA temporarily increases the limit on the federal state

and local tax deduction starting in 2025 to $40,000 (indexed for inflation) until 2030. The

amount of the deduction is phased down for those with adjusted gross income (AGI) over

$500,000.

Observation: The increase in the SALT deduction limitation should increase the number of

taxpayers who will find it advantageous to itemize their deductions. This, in turn, will increase the number (currently approximately 7.5 percent) of taxpayers who claim the charitable contribution deduction on their tax return. This would be especially true for those in so-called “Blue” or high state income jurisdictions such as New York, California, New Jersey, Illinois, Connecticut or Maryland among others.

Observation: It is expected that with the substantial increase in the SALT deduction, the number of taxpayers itemizing their deduction and thus claiming the charitable contribution deduction will increase resulting in an overall increase in charitable giving. Note that there will be a floor on itemized charitable contributions starting in 2026 which is discussed below.

• Child Tax Credit: OBBBA permanently increases the child tax credit to $2,200, effective for

2025 and indexes for inflation and makes permanent the $1400 refundable child credit,

indexed for inflation subject to income phase-outs at $200,000 ($400,000 for joint filers);

both taxpayers and dependents must have Social Security numbers in order to claim;

• Senior Deduction: OBBBA provides a temporary deduction of $6,000 (individual)/$12,000

married filing jointly) for seniors for tax years 2025 through 2028 which phases out starting

at $75,000 single/$150,00 married filing jointly;

• Tips: OBBBA eliminates the tax on tips establishing a $25,000 federal income tax

deduction, with phase-outs for those earning more than $150,000 ($300,000 for joint filers).

The provision is effective for tax years 2025 through 2028;

• Overtime: For tax years 2025-2028, generally limited to a federal income tax deduction of

$12,500 ($25,000 for joint filers), with phase-outs for those earning more than $150,000

($300,000 for joint filers);

• Automobile Interest: OBBBA provides a deduction up to $10,000 for interest on the

purchase of new cars assembled in the U.S. for tax years 2025 through 2028 for those

earning $100,000 or less ($200,000 for joint filers);

• Section 529 Accounts: OBBBA allows tax-exempt distributions from Section 529 accounts

to cover expenses of homeschooling and of elementary and secondary public and private

school;

Charitable Contributions

• Floors and Ceilings: OBBBA reduces the value of all itemized deductions to 35 percent

(rather than the top tax rate of 37 percent.) In addition, it imposes a floor of 0.5 percent of

AGI on the itemized deduction for charitable contributions. These provisions are effective

for tax years starting in 2026:

Observation: If an individual’s AGI is $800,000, the first $4,000 of charitable contributions would not be deductible. In addition, the value of the individual’s total itemized deductions would reduce taxes by no more than 35 percent because AGI exceeds the start of the 37 percent tax bracket.

Observation: Those considering making major gifts (such as six-figure gifts) should be encouraged to finalize such contributions before year-end when the floor and ceiling take effect in 2026. Similarly, those considering making major planned giving contributions such as substantial funding to or establishing a donor-advised fund or making an endowed gift to a federation or Jewish foundation would find it advantageous to consider making the gift before December 31, 2025.

• Corporate Charitable Floor: OBBBA imposes a 1 percent taxable income floor on corporate

contributions starting in tax years beginning in 2026;

Observation: The corporate charitable deduction would still be limited to 10 percent of taxable income so that only the portion of contributions between 1 percent and 10 percent would be deductible. An estimate of the impact of the change predicts a reduction in approximately $4.5 billion in annual corporate giving as the vast majority of corporate gifts would be disallowed by the new floor.

• Nonitemizer Charitable Contribution Deduction: OBBBA creates a charitable contribution

deduction for cash contributions for individuals who do not itemize deductions ($1,000

single/ $2,000 married filing jointly) starting in 2026.

Observation: A permanent “universal” or “above-the-line" charitable deduction provides a

significant giving incentive to the over 90 percent of taxpayers who do not itemize their deductions.

Charities should consider formulating strategies to attract cash contributions from this donor base, especially with so-called middle-income taxpayers and those in low or no-state income tax jurisdictions such as Florida or Texas.

Federal Tax Credit for Private Schools

• Tax credit for Contributions to Scholarship Granting Organizations (SGOs): OBBBA creates

a federal tax credit starting in 2027 for cash contributions of up to $1700 to qualified SGOs.

It appears that the federal credit is reduced by any amount allowed as a similar credit on a

state tax return, but the exact interaction of how these credits will work will need to be

clarified in regulations to be issued by the Treasury Department. States must voluntarily

elect to participate in the tax credit program and will provide a list of qualified SGOs on an

annual basis. Eligible scholarship recipients will be students in primary and secondary

schools from families with income no greater than 300 percent of the area median gross

income. Qualifying SGOs, which must be 501c3 organizations (and not private foundations)

must provide at least 10 scholarships per year and must spend at least 90 percent of its

income on scholarships;

Observation: The tax credit could dramatically aid access to Jewish day schools and generate significant philanthropic investment. Prizmah, the national Center for Jewish Day Schools, will be partnering with JFNA to support and train day school leaders regarding understanding and accessing program funding to maximize scholarship dollars as well as advocate in relevant states to ensure that SGOs serving day schools are included. One estimate suggests that as many as 128 million families could benefit from this tax credit program

Estate and Gift Taxes

• Exemption amount: OBBBA permanently increases the estate and gift tax exemption

amount to $15 million per individual ($30 million (married) starting in 2026. The amount will

be indexed for inflation.

Observation: Any change in the tax law impacting estate and gift taxes provides an opportunity to engage donors regarding legacy giving and other matters. Issues to consider include recommending large lifetime gifts rather than those at death including basis carryover versus step up for appreciating assets.

Exempt Organizations

• College and University Endowment Tax: OBBBA increases the current college and university net investment excise tax from 1.4 percent to up to 8 percent for institutions with a “student adjusted endowment” greater than $2 million starting in tax years beginning after

December 31, 2025. Schools with endowments between $750,00 and $2 million will be

subject to a 4 percent excise tax. Those below $750,00 will remain at 1.4 percent. The

endowment calculation will include assets and net investment income of related

organizations as well as student loan interest and royalty income, expanding the number of

institutions potentially subject to the tax;

• Tax on Excess Compensation: OBBBA expands the application of the tax paid by tax-exempt organizations on compensation over $1 million and certain severance payments.

The definition of “covered employee” is broadened to include any employee (including any

former employees employed on or after Jan. 1, 2017) of an applicable tax-exempt

organization or any predecessor of such organization:

Observation: A number of other tax provisions potentially impacting tax-exempt organizations such as the increase in the private foundation net investment income tax (from the current 1.39 percent to up to 10 percent), the so-called “parking lot tax” and the suspension of tax-exempt status for organizations that “provide material support or resources to terrorist organizations” were not included in the final version of the OBBBA.

Energy provisions

• Most of the “clean energy” provisions enacted in the last Administration will be terminated

after September 30, 2025. However, one provision that could still be advantageous for tax-exempt organizations is the tax-credit for installing energy-efficient property in their

buildings. This credit does not terminate until property the construction of which begins

after June 30, 2026. A special provision in the Inflation Reduction Act permits nonprofit

organizations under an “elective pay” provision of the tax code to receive the value of the

income tax credit under sec. 179D for energy-efficient commercial buildings directly from

the IRS.