Federal vs State AI Rules for Nonprofits
- Utsavi Joshi
- Oct 22
- 2 min read
Artificial intelligence is changing how nonprofits work, making everyday tasks easier and helping them deliver programs more effectively.
But as the use of AI grows, so do the rules around it. In 2025, nonprofits will need to carefully follow new federal and state regulations to stay compliant and keep the trust of the communities they serve.
Federal AI Action Plan: Big Goals and Big Concerns
In July 2025, the Trump administration released the "America's AI Action Plan," a national strategy to boost U.S. leadership in artificial intelligence. The plan highlights stronger federal coordination, new investments in AI research and development, and expanded use of federal procurement to speed up adoption.
However, the plan has faced criticism for proposed budget cuts to key science agencies like the NIH, NSF, DARPA, and NASA. Experts warn that these cuts could jeopardize interdisciplinary collaboration and the development of safe, ethical AI technologies.
State-Level AI Laws: What’s Really Happening
While the federal government works on national AI policies, states are making their own rules too:
Illinois passed a law in 2025 that bans AI from being used as a therapist. AI cannot diagnose people or talk to them for mental health treatment. It can only be used for things like scheduling or paperwork.
Colorado created a law to stop unfair treatment from AI systems. It covers important areas like healthcare, jobs, and education. Companies using “high-risk” AI have to make sure it doesn’t discriminate. This law starts in 2026.
California passed two laws in 2024. One requires AI companies to be clear about the data they use to train AI models. The other requires AI-generated content to be labeled so people can tell if something was made by AI. Most of these rules also begin in 2026.
California also has a bill SB 243 introduced in 2025 and is likely to be enacted in July 2027 for making AI companion chatbot safer for users.
These state-level initiatives reflect a growing trend of localized AI governance, with each state tailoring regulations to its unique needs and challenges.
Navigating the Regulatory Maze: Practical Steps for Nonprofits
Given the evolving federal and state AI landscape, nonprofits should consider the following actions:
Conclusion
AI rules are changing fast at both federal and state levels. Is your nonprofit ready to keep up, stay compliant, and use AI responsibly?
If your nonprofit needs help to navigate AI regulations, feel free to reach out to the CLASS Consulting Group. We're here to support your organization's journey into the AI-driven future.
CLASS has been a trusted advisor to board and leadership teams of nonprofits since 2002. Learn more here.
Read Further:
Comments