The July 2025 federal tax package introduces significant shifts in charitable giving incentives, with wide-ranging implications for donors and nonprofits alike. Here is what you need to know about how such changes may impact you come tax time.
| Category | Before (Pre-2025 Law) | After (Effective 2026) |
|---|---|---|
| Individual – Itemizers | Can deduct up to 60% of AGI for cash donations | Still allowed, but a new cap on itemized deductions for high earners may reduce incentive |
| Individual – Non-Itemizers | No deduction (since 2022); temporary COVID-era deductions expired | NEW: Above-the-line deduction of up to $1,000 (single) or $2,000 (joint) for cash gifts to public charities |
| Eligible Donations (Non-Itemizers) | N/A | Must be cash only to public charities — no DAFs or supporting orgs |
| Standard Deduction | ~$14,600 (single), ~$29,200 (joint) in 2024 | Raised to $16,000 (single), $32,000 (joint) in 2026 (indexed) |
| Corporate Deduction Limit | Up to 10% of taxable income, no floor | Still 10% limit, but only for donations exceeding 1% of taxable income |
| DAF Contributions | Deductible for itemizers (subject to IRS rules) | Still deductible for itemizers, but excluded from new non-itemizer deduction |
New Above-the-Line Deduction for Non-Itemizers
Most notably, the legislation establishes a new above-the-line charitable deduction of up to $1,000 for individuals and $2,000 for couples who take the standard deduction. This offers a long-sought opportunity to incentivize non-itemizers to make more charitable contributions. Prior to the tax change, only the 10% or so of filers who itemize rather than take the standard deduction were eligible to deduct charitable contributions on their income taxes.
Over the past two decades, the sharp decline in the number of Americans who donate to charity has made philanthropy increasingly undemocratic. With fewer middle and working class households participating in charitable giving—down from 66% in 2000 to under 46% in 2020—the donor base has narrowed significantly. As a result, charitable dollars have increasingly been concentrated in the hands of the wealthy who exercise disproportionate influence over which causes and communities receive support. This shift mirrors the broader erosion of the middle class, as economic inequality limits the ability of everyday people to contribute meaningfully. In effect, philanthropy has increasingly become a top-down system where a small, affluent minority determines which needs are seen and funded versus which are ignored.
This part of the July 2025 federal tax package has the potential to reverse this trend by making charitable giving more affordable for those who have smaller amounts to give. It is extremely important to note, however, that there are some limitations on this new deduction. Donations to donor-advised funds (DAFs) and supporting organizations are excluded, and the deduction applies only to cash donations made to qualifying 501(c)(3) public charities. You can’t deduct for old clothes or furniture given to The Salvation Army, nor can you write off donations to 501(c)(4) social welfare organizations that do a lot of lobbying, or deduct contributions made to political action committees (PACs).
New Constraints for High Income Earners
The positive changes for non-itemizers included in the the July 2025 federal tax package could unfortunately be more than offset by new constraints on itemized deductions for high-income earners since they make large-scale charitable giving less attractive from a tax-planning perspective. This is a big risk since donations from high income earners have historically funded the bulk of major gifts, endowments, and capital campaigns.
Starting in 2026, high-income individuals will face a hard limit on the total amount of itemized deductions they can claim. Rather than being a new limit, this cap represents a return to provisions similar to those that were in effect under The Pease Act prior to 2017 when it was repealed under the new Tax Cuts and Jobs Act (TCJA). Prior to the TCJA, taxpayers reduced their itemized deductions by 3 percent of every dollar of taxable income above certain thresholds. The total reduction was capped at 80 percent of the total value of itemized deductions.
Under the new Bill passed in 2025 for tax years staring in 2026, the amount of itemized deductions otherwise allowable is reduced by 2/37 of the lesser of (1) the amount of the itemized deductions or (2) the amount of the taxpayer’s taxable income that exceeds the start of the 37% tax rate bracket.
In addition, there is also a new floor impacting the amount of charitable donations that can be itemized. Only charitable contributions that exceed 0.5% of a filer’s adjusted gross income (AGI) are eligible for this limited deduction benefit. Smaller donations that don’t meet the threshold are not deductible at all under this rule.
It is important to note that these changes do not take effect until the 2026 tax year. Meaning, if you are a high income earner who wants to take advantage of the old rules, be sure to make your donations by December 31st, 2025. It is also important to note that tax law can be complex. Consult with your accountant or tax attorney to understand how the new laws may impact you specifically come tax time.
New 1% Floor on Corporate Charitable Deductions
For corporations, the new law introduces a 1% floor on charitable deductions; meaning, only contributions exceeding 1% of taxable income will be eligible for tax relief. Previously, corporations could deduct up to 10% of their taxable income with no floor. The floor is intended to prevent corporations from claiming tax benefits for minimal or token charitable donations and instead encourages larger, more meaningful giving by making only more substantial donations deductible. The downside of the new law is that it could discourage smaller or routine corporate giving, especially from businesses with lower profit margins.
Conclusion
As federal spending on social safety net programs like Medicaid, SNAP, and housing assistance faces deep cuts under the new budget package, the burden of meeting basic human needs will increasingly fall to the nonprofit sector. Millions of Americans who once relied on public assistance for healthcare, food, and shelter will now turn to charities in search of support. Yet these cuts come at the very moment when charitable giving is becoming more concentrated among the wealthy and less accessible to the middle class. If everyday Americans are giving less, and tax policy reduces the incentive for high-income individuals to give more, the nonprofit sector will likely find itself expected to do more with less. In this new reality, charitable organizations will not only need to serve more people, but also fight harder for the resources to do so. As a donor this makes it all the more important to research charities before donating to ensure that you can make the most impact with what you have to give.
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