New Tax Laws Impacting Catholic School Donors

Congress recently passed a comprehensive tax reform bill, informally called the One Big Beautiful Bill Act (OBBBA), that introduces several important changes to the rules governing charitable giving. These changes will take effect beginning in 2026 and may influence how individuals and families support Catholic schools and other charitable organizations.

Key Changes in the new Tax Laws

1. New Deduction for Non-Itemizers

   Under current law, taxpayers who take the standard deduction (those who do not itemize) generally cannot deduct charitable contributions.

   Beginning in 2026, the new law restores an above-the-line deduction for cash gifts made to qualified public charities. This means that even if you do not itemize, you can still deduct charitable gifts up to:

   • $1,000 for single taxpayers
   • $2,000 for married couples filing jointly.
     
     

   This change provides a meaningful new incentive for many households—especially middle-income families—to make charitable contributions to Catholic schools.

2. New Floor on Itemized Charitable Deductions

   For taxpayers who do itemize, the law adds a 0.5% adjusted gross income (AGI) floor to charitable deductions.

   Only the portion of charitable giving that exceeds 0.5% of a taxpayer’s AGI will qualify as deductible. For example, if your AGI is $200,000, only contributions above $1,000 (0.5% of $200,000) will be deductible.

   As a result, smaller or recurring donations below this threshold may no longer provide a tax benefit, though they remain vital for sustaining Catholic school operations and mission.

3. Cap on Deduction Value for High-Income Taxpayers

   For individuals in the top income tax bracket (37%), the value of charitable deductions will be capped at 35%.

   In effect, a $10,000 donation would reduce taxable income by only $3,500 rather than $3,700. While modest, this change slightly reduces the tax advantage for high-income donors.

How These Changes May Affect Catholic Schools

1. Broader donor participation:
   The new above-the-line deduction allows non-itemizers—many of whom are parents, grandparents, and alumni—to receive a tax benefit for their gifts. This could expand the overall donor base.
2. Timing considerations for major gifts:
   Donors who itemize may wish to accelerate significant giving into 2025, before the new 0.5% floor and 35% cap take effect.
3. Use of “bunching” strategies:
   To exceed the new 0.5% AGI floor, some donors may choose to combine several years’ worth of charitable giving into a single tax year, a practice known as “bunching.” This approach can help maximize deductions while maintaining long-term giving goals.

Donor Recommended Action Steps

1. Consult your tax advisor to understand how these upcoming changes will affect your personal giving strategy.
2. Consider accelerating planned gifts into 2025 to take advantage of the current, more favorable rules.
3. Plan your future giving intentionally—either to exceed the new 0.5% floor (if itemizing) or to utilize the new above-the-line deduction (if not itemizing).
4. Review your giving vehicles, such as direct gifts, donor-advised funds, or charitable trusts, to ensure your contributions are structured for the greatest tax and mission impact.

A Thought about Mission

While tax laws evolve, our commitment to Catholic education remains constant. With careful planning, donors can continue to support their local Catholic schools in ways that are financially wise and spiritually meaningful. Your generosity sustains not only programs, but also the formation of students in faith, character, and service.

Resources to Learn More

• FAQ: The One Big Beautiful Bill, Explained
• One Big Beautiful Bill (OBBB): Impact on charitable giving

Disclaimer

The information in this blog may not apply to your specific tax situation. Please direct any tax preparation and filing questions to a professional tax preparer or the Internal Revenue Service (IRS).