New Tax Rules Could Boost Small Donors But Cut Overall Charity Funding

Recent federal tax legislation is expected to encourage millions more Americans to donate to charitable organizations, but may simultaneously reduce total giving by $5.6 billion annually. The changes include new deductions for average taxpayers while limiting benefits for wealthy donors and corporations.

Recent federal tax legislation could lead to a paradoxical outcome for charitable organizations: while millions more Americans may start giving to nonprofits, the total amount donated could drop significantly, according to fresh analysis from researchers.

A study released Tuesday by Indiana University Lilly Family School of Philanthropy reveals how heavily charitable giving depends on major donors and corporations, whose contributions have a disproportionate effect on overall donation trends, explained Jon Bergdoll, the school’s interim director of data and research partnerships who spearheaded the study.

The research indicates that new tax incentives available to most taxpayers will motivate between 6 and 8.7 million additional Americans to contribute to charitable causes over time. Despite this increase in donors, total nonprofit contributions are projected to decline by approximately $5.6 billion each year due to new restrictions affecting corporations and high-income individuals.

Bergdoll emphasized that these effects won’t be immediate, noting that broader economic conditions will likely have greater influence on 2026 donation totals than the new legislation, known as the One Big Beautiful Bill.

“Giving I could imagine going in so many different directions this year,” Bergdoll stated. “And so this is not saying, ‘Giving will absolutely go down in 2026.’ It just there’s this little extra weight dragging it down.”

The projected $5.6 billion decrease would account for less than 1% of the $592.50 billion donated to nonprofits in 2024, based on Giving USA data. The Treasury Department has not yet responded to requests for comment regarding the new tax law’s impact on charitable contributions.

The primary driver encouraging increased donations is a new charitable deduction allowing individuals to claim up to $1,000 and married couples up to $2,000. This benefit applies to the 87% of taxpayers who use the standard deduction rather than itemizing.

Bergdoll noted that public awareness of this new deduction may develop slowly.

“That behavior will only change based off of households becoming aware,” he explained. “And the stakeholders that have the most to gain by those households becoming aware are nonprofits.”

Conversely, two provisions in the new legislation affecting wealthy contributors are expected to suppress donations. The first establishes a reduced cap on total deductions for high earners. Taxpayers in the highest bracket who itemize can now only claim total deductions equal to 35% of their income, down from the previous 37%.

“Because of the nature of giving, because of how much giving is coming from those top marginal income households, this actually has the largest effect of anything we’ve looked at,” Bergdoll observed.

A second modification affects all taxpayers who itemize deductions, roughly 11% of filers, by creating a minimum threshold. Under the updated rules, these households must donate more than 0.5% of their income to receive tax benefits. Contributions below this level won’t qualify for deductions.

The legislation also establishes a minimum threshold for corporate charitable donations at 1% of pre-tax profits. Companies giving less than this amount can no longer claim charitable deductions for those contributions.

The Lilly School analysis found this corporate change will likely reduce business giving by around $1.5 billion annually, though this figure is lower than researchers initially anticipated, Bergdoll said.

Comprehensive corporate giving data at the individual company level remains limited, he noted. However, researchers utilized information from Chief Executives for Corporate Purpose (CECP), which suggested that most charitable donations come from companies already giving above the new threshold.

Sheila Bravo, president and CEO of Delaware Alliance for Nonprofit Advancement, which supports nonprofits throughout the state, said major businesses she communicates with, including banks, don’t expect the new deduction floor to affect their giving patterns.

“Here in Delaware, the shifts that we’re seeing in corporate giving are not specific to that tax law as much as there’s other factors that are influencing corporate giving,” Bravo explained. These factors might include increased operational costs, business environment uncertainty, and internal changes in how companies make charitable giving decisions.

Bergdoll stressed that these projections represent the most probable outcomes from the tax law modifications rather than definitive predictions. However, across all scenarios examined, researchers found overall giving would likely decrease.

“At the very worst of things, we see giving dropping by almost $12 billion,” he said. “And at the lighter end of things, we see giving dropping by about $2.5 billion.”