Budget Reconciliation and the Charitable Sector

On May 22, 2025, the U.S. House of Representatives narrowly passed the budget reconciliation bill (H.R. 1) by a 215–214 vote. While two provisions that would have significantly affected the nonprofit sector were ultimately excluded—one that would have allowed the IRS to revoke tax-exempt status from organizations labeled as “terrorist supporting organizations,” and another that would have treated income from licensing a nonprofit’s name or logo as Unrelated Business Taxable Income (UBIT)—several provisions with far-reaching local impact remain in the bill.

Key Provisions Affecting Grantmaking

The bill introduces a tiered excise tax on private foundation investment income, ranging from 1.39% for smaller foundations to 10% for those with over $5 billion in assets. It also imposes a 1% minimum floor on corporate charitable deductions, which could reduce philanthropic contributions overall.

In Virginia alone, the proposed increase in the excise tax is projected to reduce available charitable dollars by over $14 million. This translates to fewer resources for nonprofits working across sectors like education, health care, the arts, environmental protection, and social services.

On a more positive note, the bill temporarily reinstates a universal charitable deduction for non-itemizers: $150 for individuals and $300 for joint filers, applicable for tax years 2025 through 2028.

• Council on Foundations summary of H.R. 1
• National Council of Nonprofits action alert

Medicaid Work Requirement and Coverage Concerns

The bill also includes stricter Medicaid work requirements, mandating that able-bodied adults work at least 80 hours per month to maintain coverage, beginning in late 2026. These changes could lead to widespread coverage losses, especially for low-income individuals facing barriers to steady employment.

Health and human service organizations are especially concerned about these provisions, which could shift greater responsibility onto nonprofits to address the gaps in coverage and care.

• Fierce Healthcare: House GOP advances bill with Medicaid work requirements
• Center on Budget and Policy Priorities: Medicaid work requirements would take coverage away

What’s Next

The bill now heads to the U.S. Senate, where changes are likely before any final vote. Nonprofits, funders, and community advocates should stay informed and engaged as the legislative process continues.