Federal funding for nonprofits: what changed in 2025–2026

Federal grantmaking changed more between January 2025 and October 2026 than in any comparable period in recent memory. Nonprofits that depend on federal money, directly or through their states, have had to absorb new executive orders, new certifications, a wave of terminations, a long shutdown, and a proposed rewrite of the core grant regulations.

This page does two things. First, it lays out what happened, with dates and sources, as neutrally as we can. Second, it offers practical steps that experienced grants and finance professionals are taking to manage the risk. Everything here is current as of October 2026. This area moves fast, litigation in particular. Check the sources linked below and your own award documents before acting, and talk to an attorney about anything affecting your specific awards.

The timeline at a glance

Executive orders affecting grants

January 2025 orders

In the first days of the administration, several executive orders addressed federal funding. The ones most relevant to grantees:

• EO 14151, "Ending Radical and Wasteful Government DEI Programs and Preferencing," directed agencies to terminate equity-related grants and contracts, among other things.
• EO 14168, on "gender ideology," directed agencies to ensure federal funds don't promote it.
• EO 14173, "Ending Illegal Discrimination and Restoring Merit-Based Opportunity," directs agencies to include in every grant and contract a term requiring the recipient to certify that it doesn't operate programs promoting DEI that violate applicable federal anti-discrimination laws, and to agree that compliance is material to payment for purposes of the False Claims Act.

Litigation over these orders has been extensive. On February 6, 2026, in National Association of Diversity Officers in Higher Education v. Trump, the Fourth Circuit vacated a preliminary injunction against the EO 14151 termination provision and the EO 14173 certification provision, finding the plaintiffs' facial challenges unlikely to succeed. As-applied challenges remain possible, and other cases are pending.

The funding pause (January 2025)

On January 27, 2025, OMB memo M-25-13 directed agencies to temporarily pause disbursement of federal financial assistance. A coalition led by the National Council of Nonprofits sued the next day, a court administratively stayed the pause, and OMB rescinded the memo on January 29. On February 25, 2025, the U.S. District Court for D.C. granted a preliminary injunction against the freeze. Separate cases, including one brought by states, also addressed it. Many nonprofits nonetheless experienced delayed payments in early 2025, and some later faced program-specific pauses.

EO 14332: oversight of grantmaking (August 2025)

EO 14332 (signed August 7, 2025; 90 FR 38929) is the order with the broadest long-term effect on how grants are made. It:

• Requires each agency to designate a senior appointee to review funding opportunity announcements and discretionary awards, and to review discretionary awards annually
• Directs that awards demonstrably advance the President's policy priorities, and lists categories agencies should not fund, including racial preferences, "denial of the sex binary," illegal immigration, and initiatives that "promote anti-American values"
• Calls for preference toward institutions with lower indirect cost rates and directs OMB to limit facilities and administration costs
• Directs OMB to revise the Uniform Guidance so discretionary grants permit termination for convenience when they no longer advance agency priorities or the national interest, and directs agencies to revise their own terms accordingly
• Requires written justifications for drawdowns
• Requires NOFOs in plain language containing only necessary requirements

Agencies have been implementing it through internal procedures and award terms. The Department of Energy, for example, issued procedures in February 2026 requiring Deputy Secretary review of all funding announcements before posting.

Terminations and the 2 CFR 200.340 clause

Starting in early 2025, agencies including NIH, NSF, NEH, AmeriCorps, EPA, the Department of Education, and others terminated large numbers of grants, often stating that the awards no longer effectuated agency priorities.

The legal hook most often cited was 2 CFR 200.340(a)(4), which allows termination "pursuant to the terms and conditions of the Federal award, including, to the extent authorized by law, if an award no longer effectuates the program goals or agency priorities." The 2024 revision to the Uniform Guidance added the requirement that agencies "clearly and unambiguously" specify termination provisions in the award. Much litigation has turned on what particular award terms said, whether the terminations were arbitrary or contrary to statute, and which court could hear the claims.

Key court rulings on jurisdiction

• Department of Education v. California (April 4, 2025): the Supreme Court stayed a lower-court order that had required the Department to keep paying certain terminated teacher-training grants, signaling that claims to enforce payment under grants likely belong in the Court of Federal Claims.
• NIH v. American Public Health Association (August 21, 2025): in a divided emergency-docket ruling granting the government a partial stay, the Court indicated that district courts could review challenges to agency guidance as arbitrary and capricious, but that challenges to the grant terminations themselves fall under the Tucker Act and belong in the Court of Federal Claims.

Practically, this means organizations challenging terminations may face split proceedings and different remedies depending on what they challenge. Many cases continue. The National Council of Nonprofits tracks litigation it's involved in, including Woonasquatucket River Watershed Council v. USDA (challenging freezes of funds under certain infrastructure and climate laws), with updates as recent as August 2026.

Indirect costs

In February 2025, NIH announced a flat 15 percent cap on indirect costs for research grants. Courts blocked it, and on January 5, 2026, the First Circuit upheld a permanent injunction, finding the policy violated an appropriations rider barring replacement of negotiated indirect cost rates. Similar caps announced by other agencies were also challenged. For nonprofits, the takeaway is that negotiated indirect cost rate agreements remain enforceable, but indirect costs are under scrutiny, and EO 14332 expressly calls for limiting them. See indirect costs.

Agency reorganizations

Several agencies that fund nonprofits were reorganized, reduced, or proposed for elimination during 2025:

• USAID was dismantled, and its remaining functions merged into the State Department as of July 1, 2025. International development nonprofits were the most directly affected.
• Other small agencies and grantmaking programs, including several targeted by a March 2025 executive order on reducing the federal bureaucracy, faced staff reductions, grant terminations, and litigation over whether they could be scaled back without Congress.
• Significant staff reductions at large grantmaking departments (including HHS and Education) slowed some grant processing, reviews, and responses to grantee questions.

Whether a specific program still exists, and who administers it, is something to verify program by program on the agency's website and in the latest appropriations law.

Appropriations and shutdowns

The fall 2025 shutdown

Funding lapsed at the start of fiscal year 2026 on October 1, 2025. The shutdown lasted 43 days, the longest in U.S. history, ending November 12, 2025 with enactment of a law (P.L. 119-37) that continued funding through January 30, 2026 and included three full-year appropriations bills (Agriculture, Legislative Branch, and Military Construction-VA).

For grantees, shutdowns typically mean: agency staff are furloughed and unavailable; new awards, amendments, and some payments slow or stop; and NOFOs and reviews are delayed. Some payment systems continued operating for previously obligated funds, but experiences varied by agency. Nonprofits relying on reimbursement-based awards felt the cash squeeze most.

Early 2026

Funding for roughly half of federal agencies lapsed briefly from January 31 to February 3, 2026. On February 3, Congress enacted a package of five full-year FY2026 appropriations bills plus a short extension for Homeland Security. DHS appropriations then lapsed from February 14 to April 30, 2026 (76 days), when a law (P.L. 119-86) restored funding for most of DHS; ICE and Border Patrol were not resolved until reconciliation legislation was signed June 10, 2026. The lapse affected FEMA and other DHS grant programs that many nonprofits and local governments rely on.

FY2027

A continuing resolution signed September 2, 2026 funds the government through December 11, 2026. No shutdown occurred on October 1, 2026. Section 157 of that law bars OMB from issuing or finalizing its proposed Uniform Guidance rewrite, or any substantially similar rule, through December 11. Watch for the next funding deadline in December.

The proposed 2 CFR 200 rewrite

On May 29, 2026, OMB and federal agencies published a proposed rule to overhaul the Uniform Guidance, implementing EO 14332 and other priorities, with a target effective date of October 1, 2026. According to legal summaries, it would broaden termination authority, require political appointee review of discretionary awards, add national policy prohibitions, require E-Verify for recipients and subrecipients, tighten drawdown justifications, eliminate most fixed amount awards, and make several cost categories newly unallowable or subject to prior approval. Comments closed July 13, 2026.

As of October 2026, it has not taken effect. The September 2026 continuing resolution bars finalization through December 11, 2026. What happens next depends on Congress's next appropriations action and OMB. Details are in our Uniform Guidance guide.

Certifications in SAM.gov

On January 28, 2026, GSA proposed revisions to the certifications that financial assistance recipients make in SAM.gov (Federal Register document 2026-01676). As described by law firms tracking it, the proposed text would include certifications on compliance with federal anti-discrimination laws (with specific examples of prohibited race-based practices), on immigration, and on not funding violence or terrorism. Comments closed March 30, 2026. We couldn't confirm an effective date as of October 2026. Read what SAM.gov asks you to certify at your next renewal. See SAM.gov registration.

What this means in practice

Most nonprofit leaders aren't litigating. They're trying to keep programs running and stay compliant. Here's what experienced grants and finance staff are doing.

1. Map your federal exposure

Many nonprofits don't know how much of their budget is federal, because so much arrives through state and local governments. Build a simple table:

Ask each government funder in writing whether its money is federal and under which program. That table tells you where you're exposed and which programs to watch.

2. Read the terms and conditions, every time

Award terms changed often in 2025–2026, and new terms frequently arrived with amendments or continuation awards. For each federal award or subaward, find and note:

• The termination provisions, including any "agency priorities" or termination-for-convenience language
• Required certifications (anti-discrimination, immigration, and others) and what exactly you're certifying
• Drawdown requirements, including written justifications
• Any program-specific prohibitions on activities or costs
• Your rights to object or appeal, and how termination costs are handled

When you're asked to accept new terms, take them to leadership and, where the stakes warrant, to counsel. Don't click through.

3. Document costs as if you'll be terminated tomorrow

If an award is terminated, what you can recover depends on what you can prove. Good practice:

• Charge costs promptly and keep source documentation current
• Draw down reimbursements regularly instead of letting them pile up
• Keep a running list of noncancellable commitments (leases, contracts, staff notice obligations) tied to each award
• Know the closeout and termination cost rules (2 CFR 200.343, 200.344, and 200.472)
• If you receive a termination notice, save it, note the effective date, stop incurring new costs except those allowed, and get advice quickly about deadlines to object or appeal

4. Build a contingency plan

Boards are asking executive directors "What if our federal money stopped next month?" Have an answer:

• Scenarios. Model 25, 50, and 100 percent loss of federal funds for each program
• Cash reserves. Know how many days of operating expenses you can cover. Reimbursement-based awards make this especially important during shutdowns
• A line of credit arranged before you need it
• Program prioritization. Decide in advance what you would pause, scale down, or protect
• Communication plans for staff, participants, partners, and funders

See the board's role in grants.

5. Diversify revenue, realistically

Diversification isn't a quick fix. Replacing a large federal award with private money usually takes years. But it's the long-term answer to concentration risk.

• Foundations and community foundations. Many responded to 2025 with bridge funding or rapid-response funds. Check your community foundation and regional funders. Note that bridge funding is generally short-term and competitive.
• State and local government. Some programs are funded with state dollars not affected by federal changes. Others pass through federal money and carry the same risk. Know which is which.
• Corporate partners and individual donors. Slower to build, more flexible once established. See corporate giving.
• Earned revenue where it fits your mission.

Build this into your prospecting pipeline and your sustainability plan.

6. When applying for new federal grants

• Read the NOFO's statement of agency priorities closely. Under EO 14332, alignment with those priorities carries more weight in selection.
• Describe your work accurately, in the NOFO's terms. Don't overstate alignment and don't hide activities you'll carry out.
• Expect possible delays between application and award, and plan cash flow accordingly.
• Read the post-award terms before you apply. They're increasingly part of the go/no-go decision. See reading a NOFO.

Where to get reliable updates

Rely on primary sources first, then trusted trackers:

• Federal Register (federalregister.gov) for proposed and final rules, notices, and executive orders
• The White House (whitehouse.gov) presidential actions for the text of executive orders
• eCFR (ecfr.gov) for the current text of 2 CFR 200
• Your agency's grants policy pages and your award notices, which control your specific awards
• National Council of Nonprofits, "The Impacts of the Recent Executive Orders on Nonprofits," with an EO tracker, litigation updates, risk-assessment checklists, guidance on responding to terminations, and a form to report impacts (updated as recently as August 2026)
• Your state nonprofit association, for state-level pass-through issues
• Your auditor and attorney for how changes apply to you

A reminder: this summary is dated October 2026. Court decisions, appropriations, and agency actions can change the picture quickly. Verify anything important against a current primary source before relying on it.