New US Tax Law Expected to Increase Donor Numbers While Reducing Overall Charity Funding
Millions more Americans are projected to donate to nonprofit organisations following recent changes to tax legislation enacted by Congress last summer. However, these same modifications are also anticipated to decrease the total monetary contributions to charitable causes, according to a comprehensive new research study.
The report, published on Tuesday by the Indiana University Lilly Family School of Philanthropy, highlights the "top heavy" nature of charitable giving. This phenomenon means that the largest individual donors and corporations exert a disproportionately significant influence on overall donation trends.
Conflicting Impacts on Different Donor Groups
Jon Bergdoll, interim director of data and research partnerships at the school and the study's lead researcher, explained the dual-edged effect. The analysis found that new tax deductions, available to the vast majority of tax filers, are likely to encourage between 6 and 8.7 million additional Americans to donate to nonprofits over the coming years.
Conversely, the research indicates that gifts to nonprofits will probably decline by approximately $5.6 billion each year. This reduction stems from new regulations specifically targeting corporations and the wealthiest individuals. Bergdoll emphasised that these impacts will not be immediate and that broader macroeconomic factors will likely have a more substantial effect on total donations in 2026 than the provisions of the new legislation, known as the One Big Beautiful Bill.
"Giving I could imagine going in so many different directions this year," Bergdoll stated. "This is not saying, 'Giving will absolutely go down in 2026.' It just there's this little extra weight dragging it down."
Key Changes Driving the Projected Outcomes
The primary incentive designed to stimulate donations is a new charitable deduction of up to $1,000 for individuals and $2,000 for married couples. This benefit applies to the estimated 87% of taxpayers who take the standard deduction and do not itemise their returns. Bergdoll noted that public awareness may develop slowly, with nonprofits themselves having a strong interest in promoting this new opportunity to potential donors.
In stark contrast, two specific alterations in the law are expected to suppress contributions from high-net-worth individuals:
- A new, lower cap on total deductions for those in the highest tax bracket, reducing the limit from 37% to 35% of their income.
- A new floor requiring itemising donors to give more than 0.5% of their income to qualify for any tax benefit.
"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 remarked.
Corporate Giving Adjustments and Broader Context
The legislation also introduces a new threshold for corporate charitable donations, set at 1% of pre-tax profits. Companies donating below this level will no longer be eligible for a charitable deduction. The Lilly School research estimates this will reduce corporate giving by around $1.5 billion annually, though this figure is lower than initially anticipated.
Sheila Bravo, president and CEO of the Delaware Alliance for Nonprofit Advancement, observed that major corporations in her state, such as large banks, do not expect the new deduction floor to significantly affect their philanthropic activities. She attributed shifts in corporate giving more to factors like rising operational costs, economic uncertainty, and internal organisational changes rather than the tax law itself.
Bergdoll clarified that these projections represent the most probable outcomes based on current data, not a precise forecast. The research models indicate a potential decline in overall giving ranging from approximately $2.5 billion at the lower end to nearly $12 billion in a worst-case scenario. A $5.6 billion reduction would constitute less than 1% of the $592.50 billion donated to nonprofits in 2024, as reported by Giving USA.
The Treasury Department has not yet provided comment on the potential effects of the new tax law on charitable giving patterns. The full implications will unfold as taxpayers and corporations adapt to the revised fiscal landscape.
