2025 Nonprofit Policy Year in Review (and Preview of Things to Come in 2026)

Last updated: December 19 at 8:41 a.m.

By: David Heinen, Vice President for Public Policy and Advocacy

If you had to provide a one-word description of the year in public policy for nonprofits, what would it be?

Unprecedented.

If you could expand that description to two words, what would they be?

Predictably unpredictable. 

What was so unprecedented and predictably unpredictable about this year’s policy developments?

In a typical year, the majority of significant policy developments affecting nonprofits in North Carolina come from the NC General Assembly. Normally, Congress passes relatively few bills that make major changes affecting the nonprofit sector. And significant federal executive actions affecting nonprofits usually follow the formal regulatory process and take years to move from an idea to a final, enforceable rule.[1]

This year, the opposite has been true. At the time this blog post was written[2], President Trump had issued 221 Executive Orders[3], and 552 lawsuits[4] were pending in federal courts challenging various executive actions from the Trump Administration. Both of these numbers are unprecedented. The number of Executive Orders and lawsuits are growing by the day, so check the links in the footnotes if you want to know the current numbers.

At the same time, the NC General Assembly has had its most unproductive session in recent history (read on for more on this trend).

Much of the (predictable) unpredictability of the year has stemmed from the shift from most policy coming from the state legislature – which follows a somewhat predictable schedule – to a significant number of Presidential actions and federal court cases that have enormous implications for nonprofits. President Trump’s tendency to take action quickly and without much notice and his willingness to push the limits of the types of executive actions that are constitutionally permissible (which may be a gross understatement) have made nonprofit policy even more unpredictable this year. Policy changes affecting nonprofits have been predictably unpredictable this year only because it has been safe to assume that, almost every week, the White House will come up with a new executive action with major implications for some or all charitable nonprofits. 

What have been the most significant federal developments affecting nonprofits this year?

Federal executive actions have (broadly) had five major impacts on nonprofits’ programs, services, and operations this year:

1. Federal grant freezes, terminations, and cuts. Ever since the Office of Management and Budget (OMB) attempted to freeze trillions of dollars in federal funding back in January, the 30% of nonprofits that receive federal grant funds (plus many others than receive federal funding indirectly or who serve people and communities that participate in a myriad of federal programs) have seen a wide array of challenges. Over the course of the year, the Trump Administration and various federal agencies terminated a variety of federal grant programs and individual grants, forced many federally-funded nonprofits to make significant changes to their programs, policies, and operations, and threatened to not renew many other grants. According to an October 25 report from the Urban Institute, 33% of nonprofits reported experiencing some type of funding disruption in the first 4-6 months of 2025. And more changes could be coming soon, as President Trump has directed OMB to rewrite the Uniform Guidance that sets many of the rules for federal grants to nonprofits and has directed federal agencies to give political appointees greater leeway in terminating grants to nonprofits. For more, see the Center’s blog post on federal grant freezes, terminations, and cuts in 2025.
2. Challenges to nonprofit diversity, equity, and inclusion (DEI) programs and policies, including many that don’t use words that begin with “D”, “E”, or “I”. Through a variety of Executive Orders, departmental memoranda, and public statements, President Trump and others in his administration have indicated this year that they believe that DEI programs and practices constitute “illegal discrimination.” This led to the elimination of DEI-related federal grant programs and requirements that nonprofits certify to federal agencies that they don’t have DEI programs or policies if they receive federal funds. It also sparked new guidance from the U.S. Department of Justice and Equal Employment Opportunity Commission suggesting that the use of race, “proxies” for race, or other DEI-adjacent considerations by nonprofits and other employers violates various federal laws.  For more, see the Center’s blog post on federal developments affecting DEI and nonprofits in 2025.
3. Challenges to the Johnson Amendment, which requires 501(c)(3) organizations to operate in a nonpartisan manner. Since his first Administration, President Trump has sought to weaken or eliminate the Johnson Amendment, even though it is a federal statute (it is embedded in Section 501(c)(3) of the Internal Revenue Code) that only Congress can amend or repeal. In June, the Internal Revenue Service (IRS) asked a federal court to agree to a consent judgment in a case involving two churches in Texas that would like to make political endorsements. Through the litigation, the IRS is taking the position that, despite the text of Section 501(c)(3), the Johnson Amendment has a narrow exception for communications from churches and other houses of worship to their congregations “through [their] customary channels of communications on matters of faith in connection with religious services.” Ultimately, this could have significant implications for all charitable nonprofits. For more, see the Center’s blog post on the Johnson Amendment litigation.
4. Changes to the Public Service Loan Forgiveness (PSLF) program. PSLF enables people working in public services – including employment with any 501(c)(3) nonprofit – for 10 years to have the remainder of their student debt cancelled. The program has helped many nonprofits recruit and retain talented staff and has made careers in the nonprofit sector financially viable for many college graduates. On October 31 (trick or treat!?), the U.S. Department of Education (DOE) issued a final regulation that would give DOE broad authority to determine that a 501(c)(3) is no longer an eligible employer for the PSLF program if DOE determines that the organization is engaged in “substantial illegal purposes.” The final rule, which was developed through an expedited regulatory process, could create confusion among nonprofits and their employees and could ultimately harm many nonprofits, their workers, and their communities. The Center submitted public comments on the proposed rule (released in August), expressing our concerns and offering feedback for ways that DOE could improve the rule (most of which were not incorporated into the final rule). The rule is set to take effect on July 1, 2026. It is being challenged in court. For more, see the Center’s blog post on the PSLF rule.
5. Threats to nonprofits that are alleged to be engaged in political violence or domestic terrorism. President Trump and others in his Administration have alleged that some nonprofits and foundations are working together to undermine Trump Administration priorities and have threatened (without any actions so far) to revoke these organizations’ tax-exempt status or to take other legal actions against them. Most notably, President Trump repeatedly threatened to revoke the 501(c)(3) status of Harvard University, one of the nation’s oldest and largest nonprofits. After the Charlie Kirk assassination in September, President Trump has more aggressively sought legal action against nonprofits and foundations that are alleged to have instigated or funded political violence or domestic terrorism. A September 25 National Security Presidential Memorandum (NSPM) from President Trump and subsequent internal guidance from DOJ gave federal law enforcement agencies and the IRS greater authority to investigate, prosecute, and potentially revoke the tax-exempt status of nonprofits and foundations that are alleged to be engaged in political violence or domestic terrorism. 

You mentioned that Congress doesn’t usually pass legislation that makes significant changes for nonprofits. Was that true in 2025?

It wasn’t. The One Big Beautiful Bill Act (OBBBA) that Congress passed this summer through the budget reconciliation process will have significant implications for nonprofit fundraising and programs for the foreseeable future. Among other things, OBBBA:

1. Established a new universal charitable deduction starting in 2026. This was a big policy win for nonprofits and should help significantly with individual giving in coming years.
2. Limited tax incentives for charitable giving for wealthy individuals and corporations, which could create fundraising challenges for some nonprofits.
3. Made several significant changes (a euphemism for cuts) to Medicaid that could lead to major increased costs for the state of North Carolina, the possibility of hundreds of thousands of North Carolinians losing health care coverage, financial challenges for hospitals and other health care providers, and general disruption (not in a good way) of the health care system.
4. Shifted a portion of the cost of SNAP benefits from the federal government to state governments and makes other changes that could lead to fewer people receiving SNAP benefits in the future. 

Check out the Center’s summary of key nonprofit provisions in OBBBA for more details on these and other parts of the new law.

Dozens of other bills affecting nonprofits were introduced in Congress this year, but most of these have not become law – or even been heard by committees. 

Also, Congress’ inaction on passing a federal budget or continuing resolution this fall – which led to an unprecedentedly long (43 days) federal government shutdown – created major challenges for many nonprofits, particularly those providing food assistance. While the Supplemental Nutrition Assistance Program (SNAP) is now fully funded through September 30, 2026, another partial federal shutdown is looming in late January 2026.

You also mentioned that in typical years, most legislation affecting nonprofits comes at the state level. How has that changed this year?

In 2025, the NC General Assembly passed just 97 laws, making this the least productive long session in the modern history of the state legislature. The NC Senate and NC House of Representatives passed seven more bills that Governor Stein vetoed. It remains possible that the House and Senate could ultimately vote to override the Governor’s veto of some or all of these seven bills. See the graph below for trends in bills passed over the past two decades. 

Is there anything significant that the General Assembly didn’t get done this year?

Yes, legislators didn’t agree on a state budget for FY2025-27. While state law prevents a government shutdown when legislators and the Governor are unable to pass a budget, the lack of a budget has a variety of consequences for state government operations, for nonprofits, and for North Carolinians.

State lawmakers also didn’t fully fund Medicaid, which would typically be a non-controversial part of the state budget or another funding bill. As a result, the NC Department of Health and Human Services (DHHS) took the unprecedented step of imposing across-the-board rate cuts for Medicaid providers on October 1. On December 10, Governor Josh Stein directed DHHS to undo the Medicaid rate cuts, but Medicaid funding will run out in April 2026 unless legislators can agree on full funding before then. Both the NC House of Representatives and NC Senate unanimously passed bills to provide full funding for Medicaid, but neither chamber has been willing to vote on the legislation that passed the other chamber.

Legislators also did not take action on several bills that would benefit nonprofits, including bipartisan legislation in the House (H.B. 755)  or Senate (S.62) that would exempt most charitable nonprofits from paying sales taxes on their purchases. The House passed a bill (H.B. 517) that would modernize North Carolina’s nonprofit laws, but the Senate did not take up that House-passed bill or its own version of it (S.489). Legislators could still pass these bills in 2026.

So what did the state legislature do this year that affects nonprofits?

The NC General Assembly passed a new nonprofit privacy law, which took effect on December 1, prohibiting most state and local government agencies from collecting or disclosing personal information about nonprofits’ donors, members, or volunteers. The new law includes several exceptions, including reports or disclosures required by the state campaign finance statute, investigations by the Attorney General or Secretary of State, information requested pursuant to a court warrant, and certain litigation discovery requests. The limitations on state and local government agencies collecting and disseminating information about people associated with nonprofits does not cover nonprofit board members, officers, or staff.

Another new law clarifies the powers of the NC State Auditor. The original bill would have treated nonprofits that receive state funds as state agencies and nonprofits receiving federal funds as federal agencies, but this language was removed from the final version based on advocacy from the Center and other nonprofits and accountants. Instead, the law creates a new category of “publicly funded entities” which includes nonprofits that receive state or federal funding, and it clarifies that the State Auditor has the authority to conduct audits of nonprofits with state or federal funds. Notably, it also limits the scope of audits of nonprofits by the State Auditor to any state or federal funds received or held by nonprofits. 

Legislators also established the Division of Accountability, Value, and Efficiency (DAVE) as a new division within the State Auditor’s office to identify cost-cutting measures in state government. DAVE (a semi-clever pun since the current State Auditor is Dave Boliek) will be similar to the federal Department of Government Efficiency (DOGE). Lawmakers provided funding for the State Auditor to hire up to 45 DAVE staff members.

Finally, a new law that took effect on July 29 could make it more difficult for state agencies to establish or update rules that protect the environment and public health and safety. The new law requires the NC General Assembly to approve any state regulations with an aggregate economic impact of more than $20 million over a five-year period. The law also changes the way that “aggregate annual economic impact” is calculated so that more rules would be covered. Additionally, the law requires boards or commissions to approve proposed rules by two-thirds votes if their aggregate economic impact would be more than $1 million over a five-year period and by unanimous votes if their aggregate economic impact would be more than $10 million over a five-year period. 

You mentioned that there are seven vetoed bills that are still awaiting override votes. Do any of these bills affect nonprofits?

Yes, two of the vetoed bills could have implications for charitable nonprofits:

1. On July 3, Governor Stein vetoed a bill (H.B. 171) seeking to eliminate diversity, equity, and inclusion (DEI) initiatives in state and local government in North Carolina. The bill, which includes a clear definition of “diversity, equity, and inclusion,” would prohibit state agencies, local governments, and public schools from promoting, supporting, funding, implementing, or maintaining DEI programs, policies, or initiatives and from applying for, accepting, or using federal funds, grants, or financial assistance that require compliance with DEI policies, initiatives, or mandates. It also would require the State Auditor to conduct periodic compliance audits to ensure that state agencies did not support DEI programs and initiatives. In April, the House removed a portion of the bill that would have significantly limited DEI initiatives and programs in nonprofits with state and local funding. Still, if the bill were to become law, it could change state law to prevent nonprofits from receiving federal or state grants related to DEI that pass through state agencies or local governments, even if future administrations were to revoke President Trump’s Executive Orders that have effectively ended most federal grant programs related to DEI. It may be difficult for the House to override Governor Stein’s veto, since fewer than 60% of House members voted for the final version of the bill.
2. On August 6, Governor Stein vetoed a bill (H.B. 87) that would enable North Carolinians to receive a federal tax credit of up to $1,700 per year for contributions to 501(c)(3) nonprofits that qualify as “scholarship granting organizations.” The tax credit was established in OBBBA and would require state approval for North Carolinians to receive the credit. If the NC General Assembly overrides Governor Stein’s veto – which seems likely since the bill passed with 60% supermajority votes in both the Senate and the House – the new tax credit would take effect for contributions made beginning in 2027. 

Looking toward next year, what are the top 6-7[5] policy trends that North Carolina nonprofits can expect in 2026? 

1. Potential challenges to nonprofit tax exemption. Challenges could come at both the state and federal level. The NC House of Representatives recently launched a study committee to look into changes to property tax laws in North Carolina. While the committee’s main goal is to explore ways to “reduce property tax burdens on taxpayers in North Carolina,” it is likely to explore nonprofit property tax exemptions. It is possible that the committee could make recommendations to limit or eliminate property tax exemption for some or all 501(c)(3) nonprofits to keep property tax payments lower for North Carolina individuals, families, and businesses. At the federal level, it is quite likely that the Trump Administration will continue to look for ways to revoke the tax-exempt status of nonprofits with missions, programs, and services that are perceived to be contrary to the Administration’s priorities.
2. Major guidance from the IRS. On September 30, the IRS released its 2025-26 Priority Guidance Plan, which telegraphs the regulations and guidance it plans to issue in the upcoming year. Two bullet points in this 19-page document could signal major changes for charitable nonprofits:
   • First, the IRS plans to release “[g]uidance on the statutory prohibition in §501(c)(3) against participation or intervention in political campaigns (the “Johnson Amendment”).” The IRS last released formal guidance on election-related activities by 501(c)(3) nonprofits in 2007 (Revenue Ruling 2007-41). The IRS’s 2007 guidance makes clear that charitable nonprofits must steer clear from supporting or opposing candidates for office or political parties. It also explains that 501(c)(3) organizations can engage in nonpartisan voter registration, voter education, and get-out-the vote activities. Next year’s IRS guidance could make fundamental changes to these existing rules by formalizing its guidance that churches and other houses of worship can make some political endorsements and placing new restrictions on the types of nonpartisan voter engagement activities that are currently allowable for other 501(c)(3)s.
   • Second, the IRS plans to issue “[g]uidance on the application of the fundamental public policy against racial discrimination, including consideration of recent caselaw, in determining the eligibility of private schools for recognition of tax-exempt status under §501(c)(3).” Translation: The IRS could issues guidance that nonprofit schools can’t engage in DEI-related activities.[6]
3. A state budget?North Carolina is the only state in the country without a state budget in place. The NC Senate and NC House of Representatives appear to be far apart on several key parts of the budget, most notably taxes. Lawmakers may feel pressure to pass a budget to keep up with changing needs in the state and to provide pay increases for public school teachers, law enforcement officers, and other state employees. If legislators cannot agree on a budget next year, it is quite possible that they won’t pass much other legislation either and that next year’s short session could yield even fewer new laws than this year’s historically unproductive long session.
4. Probably very little from Congress – at least until December. In election years, Congress traditionally avoids passing most major legislation – particularly if it might be controversial – and then returns to Washington after the election for a busy “lame duck” session in December when it rushes through all of its “must pass” legislation without adequate time for deliberation. Expect the same pattern to happen in 2026! (Or expect this prediction to be completely wrong when Congress has a busy year responding to some unforeseen catastrophic event like the 2008 recession or the 2020 COVID-19 pandemic!)
5. Continued challenges to DEI. The federal government will likely continue to implement President Trump’s anti-DEI Executive Orders in 2026. This could mean further scrutiny (and potential termination) of federal grants to nonprofits that are perceived as embracing DEI, including those that use race-neutral criteria like income and geography to determine who receives services. It also could mean further efforts to re-interpret federal employment laws to prevent “reverse discrimination” in the private sector. At the state level, Governor Stein vetoed a bill (H.B. 171) that would largely eliminate DEI in state government. The final version of the bill does not directly affect nonprofits that integrate DEI principles into their missions, programs, or policies, and it largely mirrors what is happening at the federal level. However, if the veto is overridden, state agencies would be unable to receive – and pass along to nonprofits – federal funding that is deemed to be tied to DEI, even if the federal government were to reverse course on DEI in the future. It is also possible that there could be more private sector litigation challenging the ability of nonprofits and foundations to use race as a criterion in providing certain types of programs and services.
6. More unpredictability from the White House and more court challenges to federal executive actions.[7] As noted at the beginning of this blog post, executive actions with enormous impacts for many or all nonprofits have come at an incredibly fast pace this year, often with little warning. Because so many of these executive actions pushed the boundaries of the constitutional role of the executive branch (which may be underselling it!), virtually all of them have been challenged in federal court. This will likely continue in 2026.

You said at the beginning of this blog post that your one-word description of the year in public policy for nonprofits would be “unprecedented.” Can you share a meme for that?

Thanks. It’s inconceivable that you would come up with that meme!