The “One Big Beautiful Bill Act” (OBBBA) made several changes to the federal income tax rules for charitable giving that apply beginning with the 2026 tax year. The new framework keeps the basic structure of the federal charitable deduction rules under Section 170 but adds a 0.5% of adjusted gross income (AGI) floor for itemizers, introduces an above‑the‑line charitable deduction of up to $1,000 for some non‑itemizers ($2,000 for married taxpayers filing jointly), and adds a 1% floor for corporate charitable deductions.

A prior Taft bulletin, published on June 3, 2025, summarized the broader OBBBA provisions affecting tax‑exempt organizations, including new excise taxes and changes to unrelated business taxable income; this update focuses on the charitable giving rules as they apply in 2026. This update highlights the provisions that are most likely to affect charitable giving by individuals and corporations in 2026.

Individual Donors: Non-Itemizers and Itemizers

For individuals, the revised rules distinguish between taxpayers who claim the standard deduction and those who itemize.

Non-Itemizers and the Above-the-Line Deduction. Taxpayers who do not itemize can now claim an above‑the‑line deduction for charitable contributions of up to $1,000 for qualified cash contributions each year, and a married couple filing jointly may deduct up to $2,000. The deduction reduces AGI and is allowed in addition to the standard deduction.

At a high level, the non‑itemizer rules:

• Apply only to cash contributions paid during the taxable year, not to gifts of appreciated securities or other non-cash property.
• Require that contributions be made directly to charitable organizations described in section 170(b)(1)(A) subject to the limitations of section 170(p). In general, this means public charities and certain governmental entities but excludes organizations described in section 509(a)(3), or donor advised funds as described in section 4966(d)(2).
• Impose a hard $1,000 or $2,000 annual cap per return, with no carryforward of unused amounts.

For many filers who opt for the standard deduction rather than itemization, the deduction will not change overall giving goals, but it does provide an ongoing federal income tax benefit for small and mid‑sized cash gifts.

Itemizers and the New Floor on Charitable Deductions. Individuals who itemize remain subject to the existing percentage‑of‑AGI limits and carryforward rules in section 170(b). OBBBA makes permanent the 60% of AGI limit for cash contributions to public charities, so those percentage caps and related carryforwards continue to apply above the new 0.5% floor. However, under the OBBBA, only the portion of a taxpayer’s total charitable contributions that is above 0.5% of AGI is deductible in the year of the contribution.

In practice, this means:

• The first 0.5% of AGI in charitable contributions is not deductible, even for itemizers. For example, if a taxpayer has AGI of $400,000 and makes $20,000 of charitable contributions for the year, the first $2,000 (0.5% of AGI) is not deductible. The remaining $18,000 is potentially deductible, subject to the usual percentage of AGI caps, so only that portion will actually reduce federal income tax.
• In addition, for taxpayers in the 37% marginal bracket, OBBBA limits the tax benefit of itemized charitable deductions to the equivalent of a 35% rate, which modestly increases the after‑tax cost of large gifts for those donors.

These changes do not alter the basic treatment of cash versus appreciated property or the distinction between gifts to public charities and private foundations. They do, however, affect how much of a donor’s overall charitable budget will reduce federal income tax in a particular year and may influence the timing and structure of larger gifts.

Corporate Charitable Giving and the 1% Floor

Before OBBBA, corporations could deduct qualifying charitable contributions up to a fixed percentage of taxable income, with the ability to carry forward contributions above that cap for a limited period. Under the revised rules, a corporation must now make charitable contributions equal to at least 1% of taxable income before any charitable deduction is available. The existing cap, which generally allows deductions up to 10% of taxable income, and the related carryforward rules, continue to apply above the new floor.

Under this approach:

• Charitable contributions below the new floor do not give rise to a current charitable deduction.
• Contributions between the minimum percentage and the existing cap are deductible in the year of the gift, assuming all other requirements are met.
• Contributions above 10% of taxable income are generally not deductible in the current year but may be carried forward and deducted in later years, where they are again subject to both the 1% floor and the 10% cap.

Corporations that have historically made relatively small charitable contributions may find that those gifts no longer produce an income tax benefit. Corporations with larger giving programs may want to review multi‑year commitments and adjust annual giving levels so they align with both the 1% floor and the 10% cap.

Next Steps for Donors and Charitable Organizations

In light of these changes, donors and tax-exempt organizations may wish to:

• Confirm whether they expect to itemize for 2026 and how the provisions of OBBBA affect the tax treatment of planned charitable contributions.
• For non‑itemizers, review recurring cash gifts to ensure they are structured to take full advantage of the $1,000 or $2,000 above‑the‑line deduction in section 170(p), and verify that gifts are made directly to eligible section 170(b)(1)(A) organizations.
• For corporate donors, compare projected charitable budgets to expected taxable income to determine whether contributions will fall below or above the 1% floor and how they relate to the 10% cap.
• Consider whether “bunching” gifts will increase the tax benefit of charitable giving.

A brief review of existing giving plans and internal processes can help donors and charitable organizations adjust to the updated rules for 2026 and later years.