(March 17): Changes in the tax law signed by US President Donald Trump last year are estimated to cost charities billions of dollars annually, according to a new study by Indiana University’s Lilly Family School of Philanthropy.
Overall, funding to charity is likely to drop by US$5.7 billion per year from the law, the research finds, despite a new deduction encouraging millions of Americans to give.
The new rules shrink incentives for corporations and rich Americans to give to charity by reducing the amounts they’re allowed to deduct in various ways. Combined, three provisions affecting these deep-pocketed donors are likely to cost nonprofits US$10 billion annually before accounting for any offsets that might occur, the study finds.
The tweaks to charitable rules are hitting nonprofits at a difficult time, alongside cuts to federal nonprofit grants and healthcare funding also initiated by the Trump administration.
“Nonprofits are having to do more with less,” said Akilah Watkins, president and CEO of Independent Sector, a trade organisation for the US charitable sector. “They are feeling burnt out, but they know that they have to be ready to serve Americans.”
The study’s conclusions are based on how US donors have reacted to previous changes to charitable rules, including Trump’s 2017 tax law. Relying on methods developed in other academic studies of philanthropists’ responses to similar changes, the Lilly School analysed several datasets on taxes, household finances and corporate giving.
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While people give away money for all sorts of reasons, a key factor is “the tax price of giving, how much it is actually costing a person to donate a dollar when you factor in how much in tax savings they get out of it", said Jon Bergdoll, co-author of the study and interim director of data and research partnerships at the school. “What we have consistently seen is that those tax incentives do affect the amount households give.”
The provision projected to hurt nonprofits the most, by US$6.1 billion annually, limits the charitable deductions of the richest taxpayers, who now can only deduct donations at a 35% rate rather than the top federal tax rate of 37%.
The change essentially means every dollar given away costs a wealthy donor 65 cents, rather than 63 cents. That may seem like a minor tweak, but “people at the higher end of income tend to react a lot more to these changes,” Bergdoll said.
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And with US philanthropy so “top-heavy [and] highly concentrated", even an “extremely subtle little change” to the rules can cause a significant drop in donations.
Dependence on rich philanthropists has been rising steadily, as wealth disparities in the US have widened. The top 0.4% of donors, those giving at least US$50,000, provided more than half of the money flowing to nonprofits in the first three quarters of 2025, according to Fundraising Effectiveness Project data. The top 3% were responsible for 77% of giving.
The good news for nonprofits this tax season is that the hit to big-dollar donations is partially offset by the introduction of a “universal charitable deduction", which encourages working- and middle-class taxpayers to give more. Capped at US$1,000 for single taxpayers and US$2,000 for married couples, the write-off is aimed at taxpayers who don’t itemise their taxes and thus wouldn’t otherwise have a chance to deduct donations.
The incentive could result in as many as 8.7 million people giving for the first time, according to the study, spurring up to US$4.4 billion in fresh donations annually. Even so, the financial benefits to nonprofits from the universal charitable deduction are likely to be outweighed by the changes affecting the wealthy and corporations, who are responsible for the vast majority of giving to nonprofits.
The combined impact of the universal deduction and the new corporate and individual limits results in a US$5.7 billion overall funding decline annually. There’s uncertainty to the estimates, Bergdoll acknowledged. The overall tax-induced hit to giving could range from as little as US$2.5 billion to as much as nearly US$12 billion.
Senator James Lankford, an Oklahoma Republican who pushed to expand charitable tax incentives for people who claim the standard deduction, said it’s too early to speculate about the law’s impact on philanthropic giving, noting he had not seen the study. But if more people are donating, that’s a good thing, he said.
“Every one of those nonprofits, it’s helpful for them to have more people engaged,” he said.
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In addition to the 35% deduction limit, fundraisers are worried about two provisions that create so-called “floors” for tax write-offs. Individuals can only deduct donations that exceed 0.5% of their income, while for corporations the floor is 1%. The Indiana study finds the tweaks have relatively smaller effects on overall giving, since the donors responsible for most donations exceed those levels.
Financial advisers have come up with a strategy to help clients maximise their deductions under the new rules. By “bunching” two or three years of gifts into one calendar year, donors can ensure more of their donations exceed the floor.
“We try to be smart about it,” said Mark Parthemer, chief wealth strategist at Glenmede Trust Company, by developing a “multi-year plan".
Senator Ron Wyden of Oregon, the top Democrat on the Finance Committee that has jurisdiction over tax policy, had not seen the study but said that any impact to charities will be felt deeply.
“It’s particularly relevant right now because Republicans have cut so many domestic programmes," Wyden said. Nonprofits and charitable groups have had to step up in his state to bridge the gap caused by federal spending cuts, he said.
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