Recent Tax Legislative Updates: What Colleges and Universities Need to Know

After spending considerable time discussing the intricacies of Unrelated Business Income Tax, I want to shift gears and update you on recent legislative changes that may impact your institution. While not every change will affect every college or university, it's important to be aware of what's on the horizon.

The Challenge of Naming New Legislation 

Before we dive in, let me address the elephant in the room. There's been significant debate about how to refer to the latest major tax legislation. The official name—the One Big Beautiful Bill Act—is quite a mouthful. Some people call it OBBB, others say O3B or OB3, and still others prefer to just say "more tax laws." Whatever you choose to call it, the important thing is understanding how it might affect your organization. 

In a recent poll I conducted, about 60% of respondents indicated they believe this legislation will impact their organization. That's a significant number, and it underscores why we need to pay attention to these changes. 

Key Changes to Reporting Requirements 

Expanded Excise Tax on Executive Compensation 

One important change involves the excise tax on highly compensated employees. Previously, this affected the top five highest-paid employees at exempt organizations. Now, they've expanded this to capture any employee who receives compensation above the threshold amount. These employees will be subject to excise tax and 990 reporting requirements. 

1099 Reporting Threshold Increase 

Here's some welcome news that might ease your administrative burden. The threshold for 1099 reporting has been increased from $600 to $2,000, effective for payments starting in 2026. 

For those unfamiliar, payments of this amount or more to service recipients require a 1099 unless they meet certain exceptions. This applies to both 1099-NEC (non-employee compensation form) and 1099-MISC for miscellaneous payments. Hopefully, this will reduce the volume of 1099 filings each year for many organizations. 

A common question we received: "As of what calendar year is this effective?" The answer is that it starts with payments made in 2026. 

Energy Credits Sunsetting 

The past administration put in place various energy credits with different incentives available to nonprofits. Even organizations not subject to UBI that didn't otherwise pay tax had access to a direct pay system. This allowed them to receive the benefit of credits without having to pay tax. 

However, many of these credits are now expiring much sooner than originally planned. These programs are closing up soon, depending on the type of project. 

If you have capital improvement projects on the horizon that would meet energy efficient property designations, I strongly encourage you to move on those projects before these sunset dates arrive. The monetary benefits available through the direct pay program could be significant for qualifying improvements to your facilities. 

New W-2 Reporting Requirements for Overtime Pay 

Starting in 2026 (for 2025 tax year W-2s), employers will need to start reporting overtime pay separately. For most organizations, this can be disclosed in Box 14 of the W-2. 

The reason for this change is that recipients of overtime may be able to exclude it from tax on their personal tax returns. Therefore, it must be reported or disclosed to them on their W-2 so they know what that amount is. This makes it the employer's responsibility to show overtime separately. 

If you have employees who receive overtime pay, be aware of this change now. While the requirement is mostly put off until next year, it's worthwhile looking into this and planning for implementation. 

Estate Tax Changes and Potential Impact on Donor Behavior 

The state exemption is now much higher. In other words, people are not taxed on their assets following death up to a much higher amount. 

This could potentially change donor habits. If people don't feel the need to liquidate assets or donate assets while living to avoid estate taxes, this might affect charitable giving patterns. If this removes some of that tax-motivated estate planning, some people may be less inclined to make donations during their lifetime. 

Whether there will be a real impact on donor behavior remains to be seen, but it's worth monitoring as we move forward. 

Changes Affecting Students 

There are also changes incorporated in the new law that impact student loans and grant programs. While most of the impact will be felt by students themselves, some changes could potentially impact the university as well. 

I encourage you to review these provisions in detail and consider how they may or may not affect your organization's operations and your students' experiences. 

Practical Considerations: Estimated Payments and K-1s 

One practical question that came up during my presentation: K-1s are traditionally received well after year end, usually after calendar year end. What are the best practices for estimating payments when filing extensions in November? 

In those situations, your options are limited. If it's a K-1 you normally receive each year, you may base estimates on the prior year. In many cases, investment entities will communicate to investors that they won't have the K-1 by the original due date, but they'll provide an estimate of income allocations for the year. At the very least, you should receive that. Alternatively, you could potentially request an estimate from the investment representative. These are really your best options if you're not going to get that K-1 until well past the original due date. 

Looking Ahead 

Tax legislation continues to evolve, and staying informed is crucial for proper compliance and planning. I encourage you to review the materials from this presentation in detail, particularly the sections on student loan changes and grant programs, to see what's relevant to your specific situation. 

If you believe any of these changes will significantly impact your organization, don't hesitate to reach out to your tax advisors for guidance on implementation and compliance. 

Patrick Pittman is a Director at Brown Edwards, specializing in tax compliance for nonprofit organizations. He has extensive experience assisting colleges and universities navigate complex tax matters and legislative changes.