On July 4, President Trump signed into law the One Big Beautiful Bill Act (OBBBA). It’s an 870-page piece of legislation that contains some things that are relevant to your life, many things that aren’t, and a lot of language that would go right over your head.
I have not read the bill, nor do I intend to. As a financial planner, I know who I trust in my industry, and some of them are happy to read long legislation and parse it out for the rest of us. I thank God for those people, and this blog post would not have been possible without them.
This article will provide a summary of the elements of the OBBBA that are likely to be the most relevant to you. With each aspect of the bill, there are caveats, nuances, and many details that I am leaving out. My goal here is to give you enough information to know if you need to do further research on any of these topics. For each of the things listed below, there are limitations, restrictions, and other rules that you should seek out if they pertain to you. Many of the provisions listed below are only available to taxpayers within a certain income range, and a number of them are only available between 2025-2028.
Tax Terminology to Know: Credit vs. Deduction
Before I get into the OBBBA, I want to review the difference between a tax credit and a tax deduction because the two terms are often confused. A tax credit lowers your actual tax bill. A tax deduction lowers your taxable income, which in turn lowers your tax bill.
To illustrate this, let’s say you have $100,000 of income taxed at a flat 10% (God’s tithe system is so much simpler than the American tax code!), resulting in $10,000 owed in taxes. If you were to receive a $2,000 tax credit, then you would only owe $8,000 in taxes ($10,000 – $2,000 = $8,000). If you were to receive a $2,000 tax deduction, then your taxable income would be $98,000 ($100,000 – $2,000 = $98,000), so your taxes owed would be $9,800 ($98,000 x 10% = $9,800). As you can see, tax credits are worth much more than tax deductions.
Things that are Not Changing
Now let’s get into the OBBBA itself. Back in 2017, the Tax Cuts & Jobs Act (TCJA)was passed, which made major changes to the US Tax Code. In order to keep costs within government-mandated limits, a number of the major changes were temporary. The OBBBA makes many of those changes permanent. Here is a list of things that were scheduled to go away at the end of the year but are now permanent:
Tax Brackets
The TCJA changed all of the tax brackets, and they are now going to stay that way. What you’ve seen for the past seven years is going to continue, though there will be a small inflation bump for the ranges.
No Personal Exemptions
If you remember doing your taxes before 2017, you may recall personal exemptions, which lowered your taxable income based on the number of individuals in your household. Many states still have personal exemptions for their state income taxes. The Tax Cuts & Jobs Act took those away, and now it’s official that they are not coming back for federal taxes.
Qualified Business Income Deduction
Something brand new with the TCJA was the Qualified Business Income (QBI) deduction. That is now going to stick around long term, and they also increased the income limits on the deduction. As a pastor, you may not have a small business that this would apply to, but if people pay you directly for things like officiating weddings, then you are eligible to claim this deduction on that income. This article explains it.
Employer Student Loan Payments
The TCJA also allowed employers to help their employees pay off their student loans tax-free. Employers will continue to be able to pay $5,250 (now indexed for inflation) towards their employees’ student loans, and it is not taxable income to the employee.
I probably should have made a bigger deal about this because it can help a lot of pastors. If you have student loans, ask your church to put some of your compensation towards them. If you were going to make the payment anyway, this is a great way to save on taxes. If you are in the 12% tax bracket and paying 15% SECA taxes, then your employer would have to pay you $7,192 for you to have $5,250 left to put towards your student loans after taxes.
Standard Deduction
The standard deduction was about doubled under the TCJA, and luckily, it’s not going back down again. Instead, it’s getting a little bump even beyond the inflation adjustment.
Things that Are Changing
While the OBBBA keeps a number of things the same that were scheduled to change, it also does the opposite, making a number of changes to existing tax code provisions and even introducing brand new things. Here they are:
Child Tax Credit
Your kids are now worth $200 more each, and that will go up with inflation. I hope that gives someone here a little more patience with their little monsters at bedtime tonight. The Child Tax Credit has been raised to $2,200 and will now increase with inflation. Speaking of the Child Tax Credit, I would like to remind you that your clergy housing allowance can actually be detrimental and limit your Child Tax Credit if you aren’t careful. You can read about that here.
Adoption Credit
In a win for adoptive parents, $5,000 of the adoption credit is now refundable. That means that not only can the credit eliminate your tax bill, but you can also get a check for up to $5,000 for it.
State & Local Tax Deduction
If you saw any news about the OBBBA before it passed, you probably read about the fights over the State And Local Tax (SALT) deduction. When you itemize deductions on Schedule A, you can include any state and local taxes that you paid. The TCJA limited that to $10,000, which was a huge blow to people in high-tax states. The OBBBA raises the limit to $40,000—but only for four years (2025-2028) and only for people with Adjusted Gross Income (AGI) under $600,000 (the phase out begins at $500,000). Come 2029, if those in power at the time don’t change anything, the limit will drop back to $10,000 and then increase by 1% each year.
Private Mortgage Insurance Premium Deduction
After several years of not being able to, you can now deduct your Private Mortgage Insurance (PMI) premiums on Schedule A again. It is treated as qualified mortgage interest and subject to AGI and other limitations.
Charitable Giving
The OBBBA makes some changes to charitable deductions that help those who claim the standard deduction and harm those who itemize on Schedule A. Except for a brief time during the pandemic, the only way to receive a tax benefit for your charitable giving was by itemizing your deductions, which the vast majority of Americans do not do. Now, married couples will be able to deduct up to $2,000 of charitable contributions, and singles will be able to deduct $1,000, on top of the standard deduction. This change goes into effect for the 2026 tax year and will likely benefit many of you reading this. If you’re married in the 12% tax bracket and give at least $2,000, this provision will be worth $240 for you. In the 22% tax bracket, it’s worth $440. While this deduction will lower your taxes, it does not lower your AGI.
For those who itemize deductions on Schedule A, there is now a 0.5% AGI floor for charitable contributions. It works much like the floor for deducting medical expenses, but at least it’s much lower. What it means is that for someone with $100,000 of income, you will receive no tax benefit from the first $500 of charitable giving that you do.
Senior Deduction
One of the big campaign promises we heard was to stop taxing Social Security. While a recent email that many of us received from the Social Security Administration might lead you to believe that it is included in the OBBBA, it is not. There is no provision directly related to Social Security.
That doesn’t mean that seniors were forgotten, though. Instead of something tied directly to Social Security, taxpayers age 65 and older were given an additional $6,000 tax deduction. This is only good for the next four years (2025-2028), and it starts to phase out for married couples with over $150,000 of income and singles with over $75,000 of income.
It is actually a good thing for pastors that the provision isn’t tied directly to Social Security, since some of you opted out. The way it is structured, it applies to any type of income, so those who do not receive Social Security income will still benefit.
While it isn’t exactly what was promised on the campaign trail, it still moves in that direction. It is estimated that the percentage of Social Security benefit recipients who will not have to pay taxes on their benefits will increase from about 66% to about 90% (so the Social Security Administration’s email isn’t false, just misleading).
Auto Loan Interest Deduction
There is a new deduction for auto loan interest. It applies to loans taken out between 2025 and 2028 for new, personal vehicles whose final assembly was in the United States. The maximum deduction is $10,000, and it starts to phase out when your Modified Adjusted Gross Income (MAGI) reaches $200,000 for married couples or $100,000 for singles. As you might guess, there are a lot of little details related to what actually qualifies for this, so read the fine print if you’re thinking of taking advantage of it.
And if you’re thinking of taking advantage of it, please think twice. This is not an excuse to go out and finance and brand new car unless you were already planning to do so. You do not get ahead financially by paying $100 in interest to save $12 in taxes. Please remember to make your financial decisions based on your budget, your needs, and your values, not tax opportunities. Tax planning is supposed to be the frosting, not the cupcake.
No Tax on Tips
This will probably not affect pastors unless you’re bivocational. There is a new income tax deduction of up to $25,000 for tip income. Don’t spend too much time plotting how to have your congregants pay you in tips, though, because the IRS is planning to publish a list of qualified occupations in the coming months, and I’d be surprised to see clergy listed (though I learned in 2020 that anything is possible!).
No Tax on Overtime
Likewise, there is a new income tax deduction for up to $25,000 ($12,500 for singles) of overtime income. This likely will not affect your ministerial income and is only available for 2025 through 2028.
Small Business Owners
There are a number of provisions related to small businesses that I will not discuss here. If you are a small business owner, you will want to look into them.
Trump Account
There is a new investment account for minors, nicknamed the Trump Account. Parents can contribute up to $5,000 per year to these accounts, and employers can contribute up to $2,500 for their employees’ kids and have it excluded from the parents’ income. Contributions can only be made before the child turns 18, and funds can only be withdrawn after the child turns 18. There are restrictions on when and for what funds can be withdrawn and how withdrawals are taxed.
For children born between January 1, 2025, and December 31, 2028, the US Treasury will put $1,000 into the account as soon as it is opened. The child and at least one parent must be a US citizen with a Social Security number. This is free money, so I would encourage everyone with a child who qualifies to take advantage of it.
The rules and benefits of these accounts are enough to justify their own standalone blog post, so if you’re thinking of opening one, I recommend doing some research on your own.
If you find yourself, after reading this article, thinking, This is helpful, but where’s the meat? I want the details!, then I would encourage you to follow Jeff Levine on X or read his thread about the OBBA here, or for auditory learners, listen to the Radical Personal Finance summary here.
