On July 3, 2025, Congress passed President Trump’s 1,150-page One Big Beautiful Bill Act (“OBBBA”).
Church Law & Tax’s tax resources, such as the comprehensive Church & Clergy Tax Guide, will be updated with more in-depth analysis and explanations. But for now, we offer this executive summary of provisions within OBBBA that are of greatest relevance to churches and clergy.
Five Key Provisions
- Section 110001 makes permanent the modified federal income tax bracket schedule and lower tax rates created by prior law and adds an additional year of inflation adjustment to all brackets except for the top bracket (37 percent).
- Section 110002 makes permanent the nearly doubled standard deduction created by prior law and further increases the standard deduction by including an extra year of inflation adjustment.
- Section 110112 creates a temporary deduction for non-itemizing taxpayers up to $150 for single filers ($300 for married filing jointly) for charitable cash contributions for tax years 2025 through 2028. The charitable contribution must be made to a qualified charity and cannot be made to donor-advised funds or supporting organizations.
- Section 110208 allows individuals to use their HSA for physical fitness memberships and instructional physical activity up to $500 per year for an individual and $1,000 per year for a family with up to one-twelfth of such expenses allowed per month.
- Section 112028 establishes a floor equal to one percent of taxable income for the deductibility of corporate charitable contributions. In the case of a corporation with charitable contributions exceeding the 10 percent limit, the provision allows taxpayers to add the amount disallowed under the one percent floor to the amount carried over to the subsequent year.
Further reading for pastors and church leaders:
Key Sections of OBBBA Subtitle A—Make American Families and Workers Thrive Again
Key Sections of OBBBA Subtitle B—Make Rural America and Main Street Grow Again
Key Sections of OBBBA Subtitle C—Make America Win Again
Jump over to CPA and Church CFO Tim Samuel’s “7 Ways the One Big Beautiful Bill Act Impacts Churches and Ministries”
Subtitle A—Make American Families and Workers Thrive Again
Part 1—Permanently Preventing Tax Hikes on American Families and Workers
Effective dates: most tax provisions take effect on January 1, 2026.
Several provisions within Part 1 of the OBBBA directly impact clergy and churches.
Section 110001. Extension of modification of rates.
This section makes permanent the modified federal income tax bracket schedule and lower tax rates created by the “Tax Cuts and Jobs Act (2017)” (TCJA). These were set to expire at the end of 2025.
This provision also adds an additional year of inflation adjustment to all brackets except for the top bracket (37 percent).
Key Point. The taxable income of many ministers will be substantially cut because of OBBBA. As a result, ministers may want to review their estimated tax payments and make adjustments based on the significantly reduced tax liability.
Section 110002. Extension of modification of rates.
This section of OBBBA makes permanent the nearly doubled standard deduction created by the TCJA. This section further increases the standard deduction by including an extra year of inflation adjustment.
Additionally, for tax years 2025 through 2028, this provision increases the standard deduction by an additional $1,000 for a single filer, $1,500 for head of household, and $2,000 for married filing jointly.
Section 110003. Termination of deduction for personal exemptions.
Under prior law, the deduction for personal exemptions was set to return after December 31, 2025. This section permanently repeals the deduction for personal exemptions.
Section 110004. Extension of increased child tax credit and temporary enhancement.
Under prior law, the child tax credit was scheduled to return to pre-2017 levels after December 31, 2025, and income phase-out levels would return to much lower thresholds, thus providing only $1,000 per child and making fewer American families eligible to receive the credit. Additionally, the $500 nonrefundable credit for non-child dependents would expire after December 31, 2025.
This section of OBBBA makes permanent the doubled child-tax credit of $2,000 per child, maintains the increased income phase-out thresholds, and maintains the nonrefundable, non-child dependent credit.
Additionally, this provision increases the child tax credit to $2,500 per child for tax years 2025 through 2028, permanently indexes the credit amount for inflation beginning after 2026 (rounded down to the nearest $100), and leaves the refundable credit unchanged.
Section 110006. Extension of increased estate and gift tax exemption amounts and permanent enhancement.
This section of OBBBA permanently extends the estate and lifetime gift tax exemption, increases the exemption amount to $15 million for single filers ($30 million for married filing jointly) in 2026, and indexes the exemption amount for inflation going forward.
Section 110007. Extension of increased alternative minimum tax exemption and phase-out thresholds.
This section of OBBBA permanently extends the increased individual alternative minimum tax exemption amounts and exemption phase-out thresholds.
Section 110008. Extension of limitation on deduction for qualified residence interest.
Under prior law, the deduction for qualified residence interest, also known as the home mortgage interest deduction, was set to increase from the first $750,000 in home mortgage acquisition debt to $1 million after December 31, 2025. This section of OBBBA permanently lowers the deduction for qualified residence interest to the first $750,000 in home mortgage acquisition debt.
Section 110009. Extension of limitation on casualty loss deduction.
Under prior law, the itemized deduction for uncompensated personal casualty losses resulting from a fire, storm, shipwreck, other casualty, or theft was set to return after December 31, 2025. This section of OBBBA permanently allows for the itemized deduction for only personal casualty losses resulting from federally declared disasters.
Section 110010. Termination of miscellaneous itemized deduction.
This section of OBBBA permanently eliminates miscellaneous itemized deductions that were set to return in taxable years beginning after December 31, 2025.
Section 110013. Extension of limitation on exclusion and deduction for moving expenses.
This section of OBBBA permanently eliminates both the exclusion for qualified moving expenses reimbursement and the deduction for moving expenses, except for active duty members of the Armed Forces.
Part 2 – Additional Tax Relief for American Families and Workers
Section 110102. No tax on overtime.
This section creates an above-the-line deduction from tax years 2025 through 2028 for overtime premium pay during a given taxable year. This involves overtime compensation paid to an individual required under Section 7 of the Fair Labor Standards Act of 1938 that is in excess of the regular rate (as used in such section) at which such individual is employed. Highly compensated employees or with earned income exceeding the dollar amount in effect under section 414(q)(1)(B)(i) of the Internal Revenue Code (IRC) are ineligible.
Section 110103. Enhanced deduction for seniors.
This section of OBBBA provides a deduction for tax years 2025 through 2028 for seniors (age 65 or older) of $4,000 per eligible filer, regardless of whether they are itemizers or nonitemizers, with a modified adjusted gross income that does not exceed $75,000 for single filers ($150,000 for married filing jointly).
Section 110104. No tax on car loan interest.
This section of OBBBA creates an above-the-line deduction for tax years 2025 through 2028 of up to $10,000 for qualified passenger vehicle loan interest during a given taxable year. The deduction phases out starting when the taxpayer’s modified adjusted gross income exceeds $100,000 ($200,000 in the case of a joint return). To be eligible, the passenger vehicle must have at least two wheels, be made primarily for use on public streets, roads, and highways, and have its final assembly occur in the United States.
Section 110110. Additional elementary, secondary, and home school expenses treated as qualified higher education expenses for purposes of 529 accounts.
Under prior law, “529 savings plans” are tax-advantaged accounts designed to fund education expenses, with federal law allowing tax-free withdrawals for these qualified expenses: tuition (including up to $10,000 annually for K-12 education), fees, books, supplies, equipment required for enrollment, room and board (for students enrolled at least half-time), computers, software, internet access, special needs services, and costs for registered apprenticeship programs. This section of OBBBA allows “529 savings plans” to be used for additional educational expenses in connection with enrollment or attendance at an elementary, secondary, or home school.
Section 110111. Certain postsecondary credentialing expenses treated as qualified higher education expenses for purposes of 529 accounts.
This section of OBBBA allows tax-free withdrawals (outlined above) from 529 savings plans to be used for additional qualified higher education expenses, including “qualified postsecondary credentialing expenses” in connection with “recognized postsecondary credential programs” and “recognized postsecondary credentials.”
Section 110112. Reinstatement of partial deduction for charitable contributions of individuals who do not elect to itemize.
Under prior law, only taxpayers who itemize were able to deduct their charitable contributions. For tax years 2025 to 2028, this section creates a temporary deduction for non-itemizing taxpayers up to $150 for single filers ($300 for married filing jointly) for charitable cash contributions. The charitable contribution must be made to a qualified charity and cannot be made to donor-advised funds or supporting organizations.
Section 110115. MAGA accounts.
Starting January 1, 2026, parents of any child under the age of eight years old may open a Money Accounts for Growth and Advancement (the “MAGA accounts”) with a bank or similar financial institution. MAGA accounts are designed to incentivize education, entrepreneurship, and homeownership while promoting financial security.
Children born before January 1, 2024, are eligible. Contributions may be made by parents, relatives, and other taxable entities as well as non-profit and government entities facilitated by the US Department of the Treasury.
This section also places certain limits and restrictions on contributions and distributions.
Part 3 – Investing in Health of American Families and Workers
Section 110201. Treatment of health reimbursement arrangements integrated with individual market coverage.
Under prior law, employees with a health reimbursement arrangement (HRA) offered by their employer could use this tax-advantaged arrangement on certain medical expenses. Final regulations from 2019 expanded HRAs, allowing employers to offer “Individual Coverage HRAs” (ICHRAs) which, in addition to existing medical expenses, could be used to purchase qualified health insurance on the individual market without violating group health plan requirements.
This section of OBBBA codifies the final 2019 regulations permitting ICHRAs. It also renames the policy as Custom Health Option and Individual Care Expense (CHOICE) arrangements.
Section 110202. Participants in CHOICE arrangement eligible for purchase of Exchange insurance under cafeteria plan.
Under prior law, employers could not reimburse employees for health plan premiums purchased through an Exchange if any of the premium could be paid through salary reduction.
This section makes it impossible for employers to offer an ICHRA while also allowing the same employees to use a cafeteria arrangement to pay for the balance of the plan’s premium.
However, this section also permits employees enrolled in a CHOICE arrangement to use a salary reduction to pay for health plan premiums purchased through an Exchange.
Section 110204. Health savings account contributions for individuals entitled to Part A of Medicare by reason of age.
Under prior law, individuals entitled to Medicare Part A were ineligible to contribute to a health savings account (HSA) even if they were still enrolled in a private high-deductible health plan (HDHP). This section of OBBBA allows working seniors who are eligible for Medicare Part A, but enrolled in an HDHP, to continue contributing to an HSA.
Section 110205. Treatment of direct primary care service arrangements.
This section of OBBBA allows individuals with HDHPs to also enroll in direct primary care (DPC) arrangements (and maintain their HSA) and allows HSA funds to be used to pay for DPC services.
HSA distributions or DPC services cannot exceed $150 per month for individuals or $300 per month for family arrangements, adjusted annually for inflation.
Section 110208. Certain amounts paid for physical activity, fitness, and exercise are treated as payments for medical care.
This section of OBBBA allows individuals to use their HSA for physical fitness memberships and instructional physical activity up to $500 per year for an individual, and $1,000 per year for a family with up to one-twelfth of such expenses allowed per month.
Section 110209. Allow both spouses to make catch-up contributions to the same health savings account.
This section of OBBBA allows spouses who are HSA-eligible and age 55 or older to deposit their catch-up contributions (an extra $1,000 annually) into one account.
Section 110210. FSA and HRA terminations or conversions to fund HSAs.
This section of OBBBA allows employees, at the employer’s discretion, to convert flexible spending arrangement (FSA) and HRA balances into an HSA contribution upon enrolling in an HDHP-HSA. The conversion amount is capped at $3,300 for 2025.
Section 110212. Contributions permitted if a spouse has a health flexible spending arrangement.
This section of OBBBA allows individuals to be eligible for an HSA even if the individual’s spouse is enrolled in an FSA.
Section 110213. Increase in health savings account contribution limitation for certain individuals.
This section of OBBBA allows individuals who make less than $75,000 annually (or $150,000 in the case of families) to contribute an additional $4,300 (or $8,550 in the case of families) each year to their HSA, indexed for inflation. Such additional amounts are phased out for individuals making $100,000 annually (or $200,000 for families).
Subtitle B—Make Rural America and Main Street Grow Again
Part 2 – Additional Tax Relief for Rural America and Main Street
Under prior law, third-party settlement organizations, such as payment card companies, payment apps, and online marketplaces, must issue Form 1099-K to participating payees receiving gross payments exceeding $600 for goods or services, regardless of the number of transactions.
But implementation delays for this provision by the IRS resulted in a payment threshold of $5,000 or more, regardless of the number of transactions.
This OBBBA provision decreases the threshold to $2,500 for 2025, then to $600 for 2026 and beyond.
Subtitle C—Make America Win Again
Part 1 – Working Families Over Elites
Section 112002. Termination of clean vehicle credit.
Under prior law, taxpayers could claim a tax credit of up to $7,500 for clean new vehicles placed in service in a given taxable year. The credit was limited to incomes of $150,000 for single filers, $225,000 for head of household filers, and $300,000 for joint filers. It was also limited to varying Manufacturer’s Suggested Retail Prices (MSRPs) for different vehicle types. The credit was set to expire December 31, 2032.
This section of OBBBA accelerates the expiration to December 31, 2025, and, for 2026, only allows vehicles produced by manufacturers that have not sold 200,000 new clean vehicles as of December 31, 2025.
Section 112005. Termination of energy efficient home improvement credit.
This section of OBBBA accelerates the expiration of the tax credit for household energy efficient improvements to December 31, 2025. The value of the credit was 30 percent of qualified energy efficient improvements, residential energy property, or home energy audits not exceeding $1,200 annually ($2,000 if for heat pumps and biomass stoves).
Section 112006. Termination of residential clean energy credit.
This section of OBBBA accelerates the expiration of a credit for solar electric, solar water heating, fuel cell, small wind energy, geothermal heat pumps, and battery storage in residences to December 31, 2025.
Section 112007. Termination of new energy efficient home credit.
This section of OBBBA accelerates the expiration of an energy efficient credit for new homes to December 31, 2025. This provision includes a special rule allowing homes that have commenced construction before May 12, 2025, to qualify for the credit if they are acquired by December 31, 2026.
Section 112018. Limitation on individual deductions for certain state and local taxes.
Under prior law, the itemized deduction for state and local taxes was capped at $10,000, or $5,000 for a married taxpayer filing a separate return (this is known as the “SALT cap”). This section of OBBBA increases the SALT cap to $30,000 ($15,000 for a married taxpayer filing a separate return). The cap phases down for taxpayers with modified adjusted gross incomes (MAGI) of more than $400,000 ($200,000 for a married taxpayer filing a separate return).
This provision also permanently extends the SALT cap for taxable years beginning after December 31, 2025, and implements several changes to prevent the avoidance of the SALT cap.
Section 112020. Expanding application of tax on excess compensation within tax-exempt organizations.
Under prior law, section 4960 of the tax code imposes an excise tax on excess compensation paid to certain highly compensated employees by tax-exempt organizations. The excise tax rate is equal to the corporate tax rate multiplied by the sum of (1) any remuneration in excess of $1 million paid to a covered employee for a taxable year, and (2) any excess parachute payment paid to a covered employee.
This section of OBBBA strikes the text following “means any employee (including any former employee) of an applicable tax-exempt organization” from the definition of “Covered Employee” under section 4960(c)(2). As a result, a covered employee includes any employee of an applicable tax-exempt organization that receives remuneration in excess of $1 million.
Section 112028. 1-percent floor on deduction of charitable contributions made by corporations.
Under prior law, corporate taxpayers were generally allowed a deduction for charitable contributions up to a limitation equal to 10 percent of taxable income. This section of OBBBA establishes a floor equal to 1 percent of taxable income for the deductibility of corporate charitable contributions.
In the case of a corporation with charitable contributions exceeding the 10 percent limit, the provision allows taxpayers to add the amount disallowed under the one percent floor to the amount carried over to the subsequent year.
Part 3 – Preventing Fraud, Waste, and Abuse
Taxpayers frequently improperly claim the earned income tax credit (EITC), often due to duplicate claims, causing a high rate of improper payments. This section of OBBBA establishes a phased system to detect and manage duplicate EITC claims. For tax year 2024, the IRS will send notice for duplicate claims. For tax year 2025, the IRS will hold refunds until October 15, and correct duplicate claims, though taxpayers can obtain a refund if they respond and provide evidence of eligibility.
In future years, this section creates a pre-certification process to reduce erroneous payments without delaying refunds.
Section 112207. Task force on the termination of Direct File.
This section of OBBBA terminates the current Direct File program at the IRS and establishes a public-private partnership between the IRS and private sector tax preparation services to offer free tax filing, replacing both the existing Direct File and Free File programs.
Matthew Branaugh is an attorney and editor for Church Law & Tax.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.