The Tax Code, Rewritten: What the “One Big Beautiful Bill Act” Means for PA
Summary
A few weeks ago, the House passed the “One Big Beautiful Bill Act”, Trump’s sprawling budget and tax overhaul. We’ve scrutinized the Medicare and Medicaid changes within the bill, but there’s much more to know about what the 1,000-page document contains. The section of the bill we’re working with this week is taxes—and the major code changes that will ripple down through nonprofits, individual households, small businesses, state-level planning, and how these provisions are impacting Pennsylvanians.
While many of the changes in the bill are related to individual and corporate tax, there are significant provisions that could have impacts on the non-profit sector—including charities, foundations, and educational institutions. Here’s a breakdown of what’s included and what it could mean for Pennylvanaia’s nonprofit landscape.
1. Higher Excise Tax on Investment Income for Private Foundation
The bill increases the excise tax on net investment income for large private foundations. Foundations with over $5 billion in assets could see their rate jump to 10%, a significant leap from the standard 1.38%.
What This Means for Pennsylvania
Large, endowed foundations operating in PA could feel pressure to reduce grantmaking in response to a higher tax burden. Others might give away more money now to shrink their total assets and stay under the limit—but that could mean they’ll have less to give in the future.This could ultimately lead to less available funding for the state’s nonprofit service providers, including those working in housing, healthcare, and the arts.
2. Higher Excise Tax on Executive Compensation
Under current law, nonprofits are subject to a 21% excise tax on compensation exceeding $1 million for their five highest-paid employees. The bill would expand this tax to apply to all current and former employees earning over $1 million, not just the top five.
What This Means for Pennsylvania
Large nonprofits with multiple high-earning staff members will face increased tax liability.
This could lead to higher operational costs and necessitate adjustments in compensation structure.
3. 1% Floor on Corporate Charitable Deductions
Under this provision, corporations would only be allowed to deduct charitable contributions that exceed 1% of their taxable income. This new 1% floor is layered on top of the existing 10% cap on corporate charitable deductions. Importantly, contributions that result in a tax credit are not considered deductible charitable contributions and therefore will not be subject to the 1% floor, barring a tax code change.
What This Means for Pennsylvania
Corporations with smaller profit margins, especially mid-sized businesses and local employers, may be less likely to make charitable donations that don’t exceed the 1% threshold.
Nonprofits that rely on consistent corporate philanthropy could see reduced giving.
4. Standard Deduction Expansion and Itemization Impact
The expansion of the standard deduction means fewer taxpayers will choose to itemize, which in turn reduces the incentive to make large charitable contributions. (See details in the section below titled SALT Tax.)
What This Means for Pennsylvania
High-dollar donations, often tied to itemized tax benefits, could decline. This has the potential to disproportionately affect larger nonprofits that rely on year-end giving campaigns or capital fundraising drives.
5. A Change in Passing: Revocation of Tax-Exempt Status for “Terrorist Supporting Organizations”
The Treasury Secretary currently retains the ability to revoke tax-exempt status for organizations designated as terrorist organizations. Only 9 orgnaizations in the United States have ever lost their status and been designated as “terrorist organizations”. It’s important to note that this provision was removed from the final House-passed version, but that it has the potential to be reintroduced in the legislation while in the Senate. A version of the bill or provision has been introduced in the House for the last four years—it remains to be seen if Senate counterparts are as worried about it.
Personal and Organizational Taxes
1. The SALT Deduction Cap Reform
We’ve talked about the SALT deduction cap before, back in [LINK POST], but now that the bill has passed the House, let’s take a look at what’s inside. The bill raises the federal cap on state and local tax (SALT) deductions from $10,000 to $40,000 for single and joint filers earning under $500,000. The deduction begins phasing out above $250,000 for single filers and $500,000 for joint, and disappears entirely at $800,000. It’s worth noting that this change is temporary, applying only to tax year 2025. Both the $40,000 cap and $500,000 threshold are set to increase 1% per year, starting in 2026 through 2033, and remain at that level.
Notably, the bill also bans the use of the “Pass-Through Entity Tax” (PTET) workaround, a mechanism adopted by Pennsylvania and other states that allows small businesses to bypass the SALT cap by paying taxes at the entity level.
What This Means for Pennsylvania:
Homeowners in high-property-tax areas like the Philadelphia suburbs (Montgomery, Chester, Bucks Counties) stand to benefit most.
However, small business owners who structured their taxes around the PTET workaround could see higher liabilities and need to revise their tax strategies mid-cycle.
Tax advisors and business consultants should prepare for major confusion heading into Q3.
2. Estate and AMT Changes
The bill proposes to make permanent—and slightly increase—the higher estate and gift tax exemptions introduced by the 2017 Tax Cuts and Jobs Act (TCJA):
Single filers: from $13.99 million to $15 million
Married couples: from $27.98 million to $30 million
Additionally, the bill aims to permanently raise the Alternative Minimum Tax (AMT) thresholds, reducing the number of taxpayers subject to AMT.
What This Means for Pennsylvania:
Fewer taxpayers would be subject to AMT, simplifying tax planning for some.
3. IRS Budget Rollback
Sections 10101–10105 of the bill rescind roughly $67 billion of the $80 billion in IRS funding allocated under the Inflation Reduction Act. The rescinded funding was primarily designated for enforcement, audits, and modernization.
What This Means for Pennsylvania:
Fewer audits are likely for high-income earners and large pass-through entities.
Processing delays and customer service slowdowns could worsen, impacting all taxpayers, especially those expecting refunds or filing amended returns.
The IRS’s modernization efforts—already years behind schedule—may stagnate, meaning more complexity and longer wait times for Pennsylvanians needing assistance.
4. What’s Not in the Bill, but Worth Noting
The bill does not include any new capital gains tax hikes or surtaxes on high earners, despite the measures being in early proposals of the bill.
The Qualified Business Income (QBI) deduction—a key benefit for pass-through business owners—remains unchanged.
There is no increase in the corporate tax rate or changes to estate and gift tax exemptions.
What This Means for Pennsylvania:
Investors, high-income retirees, and business owners retain favorable tax treatment—for now.
Stay alert for potential Senate amendments that may introduce new offsets or revenue raisers to win over holdouts.
Senate Response and Political Dynamics
The bill faces significant challenges in the Senate, where fiscal conservatives express concerns—Elon Musk called it an “abomination”—over its projected addition of $3 to $5 trillion to the national debt over the next decade. Senator Rand Paul (R-KY) has been a vocal critic, stating that the debt ceiling increase included in the bill is a deal-breaker for him, as it goes against conservative values.
President Trump, in turn, criticized Senator Paul for his opposition, accusing him of lacking constructive ideas and misinterpreting the bill’s potential economic impact. Senate Majority Whip John Thune is reportedly exploring further tax revisions in hopes of advancing the bill before the July 4 deadline set by Trump.
Even members of the House are continuing to criticise the bill. Some GOP members now say they regret voting for the bill because “they didn’t know what was in it”.
What Increasing the Deficit Really Means
With all the discussion surrounding the National Debt and its potential increase if the Senate were to pass the One Big Beautiful Bill, it’s important to understand what this would actually mean. Adding to the debt puts increasing pressure on Congress to find spending cuts or revenue offsets, often leading to reduced discretionary funding. For organizations in Pennsylvania, this means that social programs, infrastructure, and grants could be impacted. For nonprofits, schools, hospitals, and local governments, a higher debt can translate into fewer federal dollars allocated, more competitive grant cycles, and increase the uncertainty around sustained funding. In practical terms, it means organizations doing critical work in Pennsylvania may be asked to do more with less.
Final Thoughts
While House Republicans have billed the “One Big Beautiful Bill Act” as a win for working families and small businesses, the reality is more complex—especially in Pennsylvania, where tax structures, property values, and small business ecosystems are deeply intertwined. Some Pennsylvanians may see short-term benefits from expanded deductions or eased thresholds. But others—particularly those who relied on now-restricted strategies like the PTET workaround—will face uncertainty and disruption. As the Senate weighs its next steps, the tax code remains a battleground. Whether this bill marks meaningful reform or a temporary reshuffling depends on what survives the next round of negotiations—and how fast taxpayers can adapt. We’ll be watching.
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