Important Tax Law Changes Affecting Churches in 2025

As we enter 2025, several significant legislative changes affect how churches manage finances and support their staff. Let's break down some updates from recent legislation and what they mean for your ministry.

SECURE 2.0 Act: Enhancing Retirement Options

The Setting Every Community Up for Retirement Enhancement Act (SECURE 2.0) brought several positive changes for church retirement planning:

Automatic Enrollment Exemption

While many employers must now automatically enroll eligible employees in retirement plans, church plans are specifically exempt from this requirement. However, churches may still choose to implement automatic enrollment to help staff build stronger financial futures.

Student Loan Benefit Opportunity

Churches can now offer matching retirement contributions for employees making student loan payments. This innovative provision helps younger staff members save for retirement while managing educational debt.

Emergency Savings Provisions

New Roth-like emergency savings accounts (up to $2,500) can be linked to retirement plans, helping staff balance long-term saving with short-term security.

Enhanced Retirement Flexibility

• Required minimum distribution age increased to 73 in 2023, rising to 75 by 2033
• Higher catch-up contributions allowed for staff aged 60-63 starting in 2025
• Special provisions for hardship withdrawals, including penalty waivers for domestic abuse survivors

Inflation Reduction Act: Healthcare Impact

This legislation extended several healthcare provisions particularly relevant to church staff:

Extended Premium Tax Credits

Healthcare premium tax credits remain expanded through 2025, potentially making coverage more affordable for staff members who obtain insurance through the marketplace.

Compliance Considerations

With increased IRS funding for tax enforcement, churches should ensure thorough documentation and compliance procedures.

Additional Important Updates

Housing Allowance

The clergy housing allowance remains secure following federal court affirmation, continuing as a valuable benefit for ministers.

Earned Income Credit

For ministers, housing allowance implications for EIC calculations vary based on Social Security tax status, potentially affecting eligibility and benefits.

Understanding EIC for Ministers

The EIC calculation for ministers has unique considerations due to the special tax treatment of housing allowances and self-employment status. Here's what ministers need to know:

• For ministers who opted OUT of Social Security/Medicare (Form 4361): Housing allowance is NOT counted as earned income for EIC
• For ministers who pay Self-Employment tax: Housing allowance IS counted as earned income for EIC purposes

Practical Steps for Churches

1. Review Your Retirement Benefits Evaluate student loan matching opportunities Consider emergency savings account options Update policies for catch-up contributions Review automatic enrollment options
2. Strengthen Financial Oversight Maintain comprehensive documentation Review compliance procedures Update record-keeping systems
3. Support Staff Financial Planning Communicate new savings opportunities Help staff understand available benefits Consider providing financial planning resources

Looking Ahead

These legislative changes provide new opportunities for churches to support their staff while requiring attention to compliance details. Working with qualified financial professionals can help your ministry maximize these benefits while maintaining proper oversight.