FEBRUARY 27, 2026

We celebrate the end of the shortest month of the year with the longest policy update of 2026 (at least so far!). This week we share an analysis of ways that state property tax reform could impact charitable nonprofits. We provide information about a new proposed regulation that could affect whether many nonprofit workers are classified as employees or independent contractors. And we share the latest on the possible end to the Combined Federal Campaign, the lawsuit challenging problematic changes to PSLF, and the impact of defunding legal services nonprofits in North Carolina.

Property tax reform is likely to be a major priority for the NC General Assembly during its 2026 short session. The NC House of Representatives formed a Select Committee on Property Tax Reduction and Reforms in December 2025 "to study options to reduce the property tax burden on taxpayers in North Carolina.” The committee has met three times thus far and is planning to come up with recommended legislation for the short session next month. A group of 10 NC Senators is also looking into property tax reforms.

Changes to state property tax laws could affect charitable nonprofits in a variety of ways. Legislative proposals could include limiting or eliminating property tax exemption for some 501(c)(3) nonprofits. And proposals to limit local governments’ ability to increase property tax collections could help keep lease prices down for nonprofits that rent their property but also could force many counties and municipalities to cut back on expenses, potentially meaning fewer local government grants for nonprofits.

The Center has written a new blog post to help your organization better understand what is at stake for nonprofits in property tax reform.

It is possible that state lawmakers could consider proposals this year to limit sales tax refunds and/or property tax exemption for nonprofit hospitals in North Carolina. Challenges to the tax exemption of some charitable nonprofits – even very large ones – can set precedents that could undermine tax exemption for other 501(c)(3)s in the future. Limitations on some nonprofits’ state and local tax exemption also can create greater competition for limited philanthropic support for the nonprofit sector and can force large tax-exempt institutions to cut back on their financial and in-kind support for other nonprofits in their communities.

As the Center continues to make the case to elected officials about the importance of maintaining tax exemption for all charitable nonprofits in North Carolina, it is helpful for us to have examples of ways that organizations are partnering with nonprofit hospitals and health systems in their communities. Let us know any ways that your organization partners with nonprofit hospitals and health systems. Thank you if you have already shared your feedback with the Center. Note: The Center will not share your input with elected officials without your permission.

This morning, the U.S. Department of Labor (DOL) published a proposed rule on the Federal Register that would make it easier for employers – including both nonprofits and businesses – to classify many of their workers as independent contractors instead of employees under the Fair Labor Standards Act (FLSA). Unlike employees, independent contractors are not subject to FLSA’s minimum wage and overtime requirements. Many businesses and nonprofits do not provide employee benefits to independent contractors, meaning that classifying workers as independent contractors can generate cost savings for employers. 

The proposed rule, which would be the third change in DOL worker classification regulation in the past six years, would establish two “core factors” in determining whether workers are employees or independent contractors:

Other factors – including the amount of skill required for work, the degree of permanency of the working relationship, and whether the work is an integrated unit of production – would carry less weight in assessing worker classification. The proposed rule includes eight examples, most of which are not particularly relevant for nonprofits. The proposed rule is very similar to a previous DOL worker classification rule that took effect at the beginning of 2021.

The current DOL worker classification rule, which took effect on March 11, 2024, uses a more traditional six-factor “economic realities” test that considers:

Nonprofits, businesses, and others can submit public comments on the proposed rule through April 8.

Tomorrow is the final day of in-person early voting for the March 3 primary election in North Carolina. It is not too late for nonprofits to encourage their staff, volunteers, and the people they serve to make a plan to vote early in the primary election. Early voting is a great option for many North Carolinians for several reasons:

Registered voters who don’t vote during the early voting period can still vote in person on the primary Election Day next Tuesday, March 3. You can find your Election Day polling place, along with your sample ballot by looking up your voter registration status on the NC State Board of Elections voter search tool.

For more on ways that nonprofits can engage in the 2026 election in nonpartisan ways, check out the recording of the Center’s webinar on (Almost) Everything Your Nonprofit Needs to Know about the 2026 Election.

Last Friday, the U.S.  Office of Personnel Management (OPM) sent a message to the more than 4,400 charitable nonprofits that participate in the Combined Federal Campaign (CFC) indicating that it will end the program as soon as March 4.  The CFC is the country’s largest workplace giving program. Since it was created in the 1960s, the CFC has helped raise nearly $9 billion for nonprofits, including $66 million last year. Through the CFC, donations are dispersed to nonprofits across different regions, including 75 nonprofits based in North Carolina. OPM also attempted to end the CFC in 2025, but ultimately allowed it to continue last year.

Last October, the U.S. Department of Education (DOE) issued a final rule on eligibility for the Public Service Loan Forgiveness (PSLF) program. Under PSLF, student loan borrowers who work in public service jobs – including positions with 501(c)(3) nonprofits – for 10 years while paying off their student loans are eligible to have the remainder of their federal student loans forgiven. The final rule, which takes effect on July 1, will exclude employers – potentially including some 501(c)(3) nonprofits – from being eligible employers for PSLF if they are engaged in “substantial illegal purposes.” It will also require nonprofits to certify in their application to be a PSLF-eligible employer that they do not participate in activities that have a substantial illegal purpose, which may be difficult and unclear for staff to determine if the organization provides services in certain mission areas or to particular populations. For more information about the final rule, the Center’s concerns about it, and its potential impact on nonprofits, check out the Center’s analysis of the final rule.

In November, a group of nonprofits, local governments, and associations of public service workers filed a lawsuit in federal court in Massachusetts alleging that DOE violated the federal Administrative Procedures Act in its final rule. The court could hold oral arguments in the case this spring. This week, several groups, including legal services nonprofits, environmental nonprofits, local governments, and civil rights organizations, filed amicus curiae briefs supporting the plaintiffs’ arguments that the final rule violates federal law and could create significant harm for a wide variety of nonprofits and local governments as well as the people and communities they serve. 

A state law from last summer (S.429) prevents the NC State Bar from making grants through the Interest on Lawyers’ Trust Accounts (IOLTA) grant program for FY2025-26. The IOLTA grant program typically provides grant funding to a variety of legal services programs, so this state law has essentially defunded many legal services nonprofits for 2026.

Last month, NC IOLTA and the NC State Bar released the results of their survey of 2025 IOLTA grantees, which demonstrates the negative impact of defunding the IOLTA grant program on these organizations and the people and communities they serve. As a result of the funding freeze, legal services nonprofits have been forced to lay off staff, reduce employee benefits, and cut back on the number of clients they serve and the number of sites where they offer services. A continued funding freeze could further hinder these organizations’ ability to provide timely support to clients with urgent legal needs.

Temporary funding for the U.S. Department of Homeland Security (DHS) expired two weeks ago, meaning that DHS is technically shut down until Congress agrees either to fund it for the remainder of the fiscal year (through September 30) or through a temporary continuing resolution. Congress has been unable to agree to the details of DHS appropriations legislation because of concerns about immigration enforcement, which is operated by DHS. Relatively few nonprofits have grants through DHS, and the majority of DHS staff are still working because they are considered “essential” employees. However, it is possible that there could be disruptions to services from the Transportation Security Administration (TSA) and/or Federal Emergency Management Agency (FEMA), since some TSA and/or FEMA workers could stop showing up for work after they don’t receive their regular paychecks today.

Congress has approved funding for the remainder of the federal government – including most federal agencies that provide grant funding for nonprofits – for the rest of the fiscal year. This means that most federal services and federal grants to nonprofits should be unaffected by the current DHS shutdown.

Nonprofit Policy Update is the weekly newsletter on state and federal policy issues affecting 501(c)(3) nonprofits. Learn more about the Center's public policy agenda.
©2026 North Carolina Center for Nonprofits

Not a subscriber? Sign up for Center emails.
Current Center Member? Access your benefits or create your account.
Not a Center Member? Join now.
Not a nonprofit? Support or affiliate with the Center.