Nearly every university in the United States is registered and files as a 501(c)(3) organization. This special status provides the university with preferential tax treatment that can be worth billions of dollars for a school like Harvard. CNN recently reported that Trump has requested that the IRS revokes Harvard’s tax-exempt status. This article discusses three key ways that losing the 501(c)(3) tax status could cost Harvard billions due to paying more in taxes.
Endowment Earnings Are Not Subject To Income Taxation
A financially advantageous attribute of a 501(c)(3) organization is that the money it earns from its endowment is not subject to taxation. According to an NBC News report, Harvard’s endowment currently sits at $53.2 billion. Assuming a 5% rate of return, this means that Harvard would generate over $2.5 billion per year in endowment earnings. Currently, Harvard gets to keep all of this money. In fact, endowments can be misleading because the university primarily only uses the earnings from the endowment. However, if Harvard were to lose its tax-exempt status, it would have to pay a significant portion of its earnings from the endowment to the government as income taxes.
Donors Receive Tax Deductions For Their Contributions
Tax-exempt organizations provide significant tax benefits to their donors by allowing their donations to be tax deductible. For example, if a donor in the top tax bracket (37% tax rate in 2025 on income over $626,350 for single taxpayers or income over $751,600 for married taxpayers) were to donate $100,000 to Harvard, this donation would be able to be deducted as an itemized expense. This means the donor’s taxable income would be reduced by $100,000, generating a $37,000 tax benefit.
If Harvard were to lose its tax-exempt status, donors would no longer be able to lower their taxable income by this charitable contribution. Donors may still wish to donate to Harvard without this beneficial tax treatment. However, Harvard losing the 501(c)(3) tax status would provide financial incentives for the donors to hold onto their funds or donate to a different 501(c)(3) organization where they could continue receiving the tax benefits.
Universities Are Exempt From State And Local Taxes
501(c)(3) organizations are also typically exempt from paying state and local taxes. Of particular note for Harvard and other similar universities on large pieces of prime real estate is that they are not required to pay property taxes. Depending on the value of the property Harvard is situated on, this exemption can cost millions per year as the town of Cambridge, Massachusetts, levies a tax of $11.52 per $1,000 of land value. Even if the land is only worth $200 million, Harvard losing their 501(c)(3) tax status would lead to a tax bill to Cambridge for over $2 million per year. This higher property tax would be in addition to other state and local taxes owed.
A recent Bloomberg News article estimates that Harvard losing their status as a 501(c)(3) organization would cost the university over $465 million annually. Using this estimate, it would only take Harvard a little over two years for it to pay $1 billion in taxes (nearly $2 billion over the course of Trump’s second term) that it would otherwise not have to pay if it were to remain a 501(c)(3) organization. These expenses ultimately come at a steep cost to its students and faculty as it leaves fewer funds available for scholarships, grants, and support. These expenses would also come at an inopportune time when the Trump administration has already frozen over $2 billion in federal funds to Harvard.
Importantly, being a non-profit university can significantly negatively affect the school’s reputation, leading to unmeasurable negative consequences. A Forbes article discusses how universities that do not have a 501(c)(3) status have been riddled with controversies and questions over the quality of education. Even if Harvard maintains its reputation for being a high-quality educational institution, being considered a for-profit university may call into question its status as being among the most elite.
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