President Trump’s “One Big Beautiful Bill” (OBBBA) was narrowly passed in the House in May, and while there are many important aspects of the bill, there are provisions that may affect secondary and post-secondary institutions in particular. While the items our Tax Team discusses below are not yet law and are subject to change, it is important to understand and follow the bill as it moves through Congress.
The House Tax Bill offers new funding sources for elementary, secondary, and higher education, as well as other significant changes for 501(c)(3) organizations. Those interested in understanding whether they are eligible should act quickly.
- Private elementary and secondary schools stand to benefit from two provisions in the tax portion of the House budget reconciliation bill, but will need to act quickly if these provisions become law.
- Private foundations and higher educational institutions’ endowments could be subject to significantly increased taxes on their income.
The Provisions
1. Scholarship Donation Tax Credits
This provision incorporates a modified version of the Educational Choice for Children Act of 2025 (S.292/H.R.833), which provides a dollar-for-dollar income tax credit for donations to scholarship granting organizations that provide private school scholarships to eligible students.
Key aspects include:
- Donor provisions
- Donors may receive a credit for donations up to the greater of $5,000 or 10 percent of the donor’s adjusted gross income
- Donations may be in the form of cash or marketable securities
- Credits are reduced for any state-level credits provided for the same donations
- The credit pool
- The credit pool is $5 billion, with potential annual increases
- Credits are available for donations made from 2026 through 2029
- Credits are available on a first come, first serve basis (based on the time of the donation during the calendar year) until fully exhausted
- Scholarship granting organization requirements
- 501(c)(3) tax-exempt status, excluding private foundations
- Substantially all of the activities provide scholarships for qualified elementary or secondary education expenses of eligible students
- The organization provides scholarships to two or more students, provided that not all such students attend the same school
- The organization does not provide scholarships for any expenses other than qualified elementary or secondary education expenses
- Scholarship recipients are given priority based on prior year award and siblings of award recipients
- Income verification and independent audit requirements are met
- No board member may be a convicted felon
- Anti self-dealing and disqualified person donation requirements are met
- All donations are distributed annually, subject to reasonable administrative expense safe harbors
- Student eligibility
- Eligible students are members of households with an income equal to or less than 300% of the area median gross income, and
- Are eligible to enroll in a public elementary or secondary school
- Qualified expenses
- Tuition
- Curricula and curricular materials
- Books or other instructional materials
- Online educational materials
- Tuition for tutoring or educational classes outside of the home, including at a tutoring facility, but only if the tutor or instructor is not related to the student, with additional requirements
- Fees for a nationally standardized norm-referenced achievement test, an advanced placement examination, or any examinations related to admission to an institution of higher education
- Fees for dual enrollment in an institution of higher education
- Educational therapies for students with disabilities provided by a licensed or accredited practitioner or provider, including occupational, behavioral, physical, and speech-language therapies
2. 529 Expansion
This provision expands the types of elementary and secondary educational expenses to which 529 Account funds may be applied to include the qualified expenses listed in the first provision detailed above. Currently, 529 funds may be used to pay for private elementary and secondary school tuition only.
The House bill provides an historic funding opportunity for private elementary and high schools by offering a dollar-for-dollar tax credit (as opposed to a deduction) for qualified donations, as well as a significant expansion of expenses to which such scholarship amounts (as well as 529 amounts) may be applied. Given that the credit is offered on a first come, first serve basis, beginning on January 1, 2026, schools will need to be prepared to establish scholarship granting organizations and commence fundraising efforts immediately upon passage.
3. Increased Taxes on Endowments and Private Foundations
Endowments: The bill would greatly expand an excise tax on income earned by certain secondary and post-secondary educational institutions’ endowments. The tax rate on endowment income increases with the size of the endowment, based on endowed assets per student:
| Endowed Assets per Student | Tax on Net Investment Income |
| $500,000-$750,000 | 1.4% |
| $750,000-$1,250,000 | 7% |
| $1,250,000-$2,000,000 | 14% |
| $2,000,000 and above | 21% |
The tax would not apply to endowments held by state colleges and universities or certain religious-affiliated organizations.
Foundations: Private foundations, including foundations associated with secondary and post-secondary educational institutions, are currently subject to a 1.39 percent tax on their net investment earnings. The tax would remain at that rate for many foundations, but would increase significantly for others, based on the size of the foundation:
| Foundation Assets | Tax on Net Investment Income |
| Below $50,000,000 | 1.39% |
| $50 million – $250 million | 2.78% |
| $250 million – $5 billion | 5% |
| $5 billion and above | 10% |
If these provisions are enacted into law, some foundations may need to consider whether their giving strategy will affect their tax rates, which could occur if a foundation is at the top or low end of a bracket. Foundations affiliated with private colleges and universities should review the tax efficiency of holding assets in a foundation versus adding them to endowments, as the two tax schedules could produce materially different results. Further, it is likely that the assets of closely related foundations would be combined for purposes of determining the tax, and it is possible that foundation assets would be combined with endowment assets in some circumstances for purposes of determining the endowment tax.
For help understanding new opportunities and the implications of the bill, contact Michael Guariglia, Joel Horowitz, Jill Lebowitz, or Michael Puzyk.