A Quick Look at the Big Beautiful Bill Act (OBBBA)

In July 2025, the federal government passed the One Big Beautiful Bill Act (OBBBA), a sweeping piece of legislation that temporarily allows individual tax deductions for certain tip income and overtime wages from 2025 through 2028. While the headlines have focused on restaurants and hourly wage earners, there are direct implications for nonprofits—especially those with tipped staff, hourly program workers, or event-based teams.

Let’s take a closer look at what’s changed, what you’re now responsible for, and how to keep your nonprofit in compliance.

What’s New: Deductions for Employees on Tips & Overtime

Tip Income Deduction

Employees in occupations that customarily and regularly receive tips as of December 31, 2024, may now deduct up to $25,000 in tip income from their federal income taxes. This phases out for individuals earning over $150,000 (or $300,000 for joint filers). 

Overtime Deduction

Non-exempt employees (hourly workers) can deduct the premium portion of overtime wages (i.e., the extra ½x pay earned above 40 hours/week). The deduction is capped at $12,500 per person ($25,000 for married filing jointly), with the same income phase-outs.

Note: These are federal income tax deductions for employees. They do not change FICA payroll taxes or state/local tax treatment.

What This Means for Your Nonprofit

1. Payroll Tracking Just Got More Complex

Nonprofits are now expected to separately report:

• Qualified tip income, by occupation.
• Premium portion of overtime wages, itemized on W-2s.

You’ll need to ensure your payroll systems can properly segment and report these figures by year-end, beginning with the 2025 tax year.

2. Event Staff & Program Workers May Be Affected

In the nonprofits I work with, the primary place we will see this impact is in tipped “café” workers. But while many nonprofits don’t operate traditional tipped roles, staff working fundraising galas, food service, hospitality, or public-facing community events may qualify.

Similarly, hourly staff such as:

• Overnight shelter workers,
• Camp counselors,
• Program assistants, or
• Seasonal support staff may regularly receive overtime pay.

These staff members may benefit from the new deductions—but only if their wages are reported correctly.  Further guidance is coming!

3. Administrative Burden Will Increase

Many nonprofits operate with lean finance and HR teams. This new law adds responsibilities:

• Track which roles qualify for deductions (based on forthcoming IRS occupation lists),
• Update time-tracking systems to isolate premium overtime pay,
• Clearly report these items on 2025 W-2s and beyond.

4. Communication with Employees Is Essential

Your team may not know about these deductions unless you tell them. Consider preparing an employee briefing (or get one from your payroll processor) that explains:

• What the new deductions are,
• Who may be eligible,
• Where to find these numbers on their W-2.

Risks of Noncompliance

• Misreporting could result in IRS scrutiny.
• Failing to update systems may create headaches at tax time for employees.
• Incorrectly classifying roles (especially around tipped occupations) could expose your nonprofit to audit risk.

Action Steps for Nonprofit Leaders

To prepare for the new reporting requirements under the Big Beautiful Bill Act, nonprofit organizations should:

• Review Staff Roles
  Identify any positions within your organization that may qualify for tip income (e.g., event staff, hospitality roles) or receive frequent overtime (e.g., program aides, shelter workers).
• Update Payroll Systems
  Ensure your payroll software or provider can:
•  Track and report qualified tip income separately, by role.
•  Isolate the premium portion of overtime wages (the ½x amount above regular hourly pay).
• Monitor IRS Guidance
  Look for official IRS lists of qualifying tip-based occupations and further clarification, expected by October 2025.
• Revise Policies and Procedures
  Update employee handbooks, job descriptions, and scheduling practices to reflect the new compliance requirements for overtime and tipped roles.
• Educate Employees
  Communicate with staff who may qualify for the new tax deductions. Provide clear instructions on where to find this information on their W-2 and how it may benefit them during tax filing.
• Budget for Compliance Costs
  Plan ahead for any additional payroll support, system upgrades, or HR training that may be required to meet the new standards accurately and efficiently.

Broader Considerations for Nonprofits

This portion of the bill is just one of several nonprofit-relevant provisions in the OBBBA. Others include:

• Expanded above-the-line charitable deductions for individual donors,
• Additional oversight tools for the IRS related to terrorist-linked nonprofits,
• Limits on executive compensation write-offs for private foundations.

Staying informed now can help your organization avoid costly surprises down the road.

Final Thoughts

While the tip and overtime deductions created by the Big Beautiful Bill are designed to benefit individual workers, the reporting and tracking responsibilities fall squarely on the employer—including nonprofit organizations.

Taking proactive steps now to understand your obligations, educate your team, and update your systems will save your organization time, money, and stress during tax season. 

Again, the guidance is expected around October 2025. 

Need help navigating these changes? A fractional CFO can help your nonprofit not only stay compliant, but also implement the kind of smart financial systems that enable more strategic forward-looking decisions—without the cost of a full-time CFO.

Click here to start the conversation.

And make sure you’re subscribed to my blog or Youtube to catch next week’s video where we’ll look at the major changes just announced by the IRS about nonprofits and political engagement.

I hope this has been helpful and I look forward to serving you!