Two Tax Policies Affecting Nonprofits in 2020

What you should know about tax policies as a nonprofit.


As we begin a new year and a new decade, it’s important that nonprofit’s take stock not only of where they have been but where they are going. Doing so allows us to set new priorities and forge new paths. Public policies at the local, state, and federal levels can and will impact your ability to achieve your nonprofit goals. Here are the two latest policies you should take note of as a nonprofit.


Unrelated Business Income Tax

TCJA or Tax Reform 2017 took effect on January 1, 2018, and ushered in the first comprehensive overhaul of the United States tax structure since 1986. TCJA included a number of changes for individuals, corporations, and social-good organizations. One provision in TCJA which garnered little attention was a change to Unrelated Business Income Tax or UBIT for short. As defined by the IRS, UBIT is a tax on “income from trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis of the organization’s exemption.” In this scenario, TCJA imposed a 21% tax on transportation fringe benefits that nonprofit organizations offered to their employees. This included parking and transit passes.


In 2019, the President signed an appropriation and tax package repealing UBIT for transportation fringe benefits for nonprofit organizations. Organizations that have filed and paid taxes are eligible for refunds on these taxes.


Private Foundation Excise Tax

Through excise tax, private foundations paid a maximum tax of 2% annually on their net investment income. The excise tax could also be paid out at 1%, using a complex formula based on the foundation’s distributions and its average percentage payout over the preceding five years.


Beginning with tax years after the date of enactment, December 20, 2019, the private foundation excise tax will be a flat rate of 1.39%. The dual rates are eliminated and foundations can distribute funding in times of community need — without the fear of being penalized at a later date.


Contact the experts at HUB International Insurance Services in Colorado at 719-546-6827. Make sure that your nonprofit is properly covered. We will work with you to ensure you are getting the most out of your coverage.