What the OBBBA Means for Preachers
With the passage of the “Big Beautiful Bill,” preachers in the churches of Christ might wonder what it means for them. While it is true that there is no specific reference in the bill that I know of which mentions ministers, there are specific implications for preachers because of how many of us file taxes.
Don’t get a raise. That’s right, if you make over a certain amount of money than what the church gives you, you will be giving right back to Uncle Sam. Here is how it works: If you get a 1095 health form and file 8962, then you may be receiving up to about $15,000 or more in insurance premium credits to buy insurance on HealthCare.gov (depending on family size). This of course is based on your income. That is a LOT of money. If the church gives you a raise of $5,000 they may think they have done well. However, if you are like me, you were getting WAY more than that in premium credits. If I make more money, the Feds will immediately begin giving me less premium credits for health insurance. It makes no sense for the church to give it to me and then I turn right around and give it to the Powers That Be. I like it that I pay almost nothing for health insurance. I want to keep it that way. Another way this works is if you have children and qualify for the Earned Income Credit. That credit can reduce your taxes by over $3,000 per year or even more. HOWEVER, it is based on income. If you don’t make less than, say, 200% of poverty level, this amount gets reduced down to nothing as you approach 400% of poverty level. The neat thing is that what the Feds consider poverty can actually provide a decent living in rural Tennessee. You will make a decision based on where you live and the cost of living, but in my case, I have really enjoyed that tax reduction and I would have to preach three extra meetings or get a pretty big raise to make up for that. No thanks. I know that some of you might be thinking, “But my children are grown.” If they are in school and under 26 years old, it doesn’t matter. Just make sure in their taxes they file as your dependent.
The 2017 revisions to taxes were made more or less permanent in the OBBBA. This means for most of us, you no longer have to worry about going back to figuring health expenses on Schedule A, keeping track of all your church contributions and donations, etc. Just take the standard deduction and you’re done. Now, this also means that your contract with the church to designate X amount of money as housing allowance is very important. You can take that amount off IN ADDITION to the standard deduction, if you actually used it. If you own your own home, you will use a bunch of it, and thus we have another reason not to live in a parsonage. If you live in a preacher’s house you will have to pay additional tax on the fair rental value of the house. If you have kept track of rent costs in your area, I bet you dread this one. Actually, if you pay any income tax as a preacher then you are either not doing it right, or you don’t need to read this article because you are making pretty good money. Sorry, you will still owe thousands in Social Security tax after the Big Bill. It didn’t do any magic for us there.
If you have sufficient business and file your taxes using a Schedule C, then you need to check whether you can use the Small Business Deduction. It is a great resource for preachers who have multiple sources of income, get a pretty hefty salary, and really for anyone who files a Schedule C. If the church is giving you a W-2 and you are filing as an employee, you are out of luck my friend. Also, your church treasurer hates you–for good reason. I should probably mention here that if an accountant tells you that the church must give you a W-2 and/or must deduct from your paycheck, he is just wrong. Preachers have special tax code just for them. Churches of Christ are like community churches and we CONTRACT with the local church to preach for them. Keep it that way, file a Schedule C, and you will be much happier. “…be ye therefore wise as serpents, and harmless as doves.” – Matthew 10:16
-Tim McHenry, TBC Online Instructor
