Trump’s new tax bill—officially called the “One Big Beautiful Tax Cut Act”—is now law. And while much of the spotlight has been on how it affects restaurants and hospitality workers, childcare centers also stand to benefit in meaningful ways.
This bill creates a temporary but powerful window for childcare business owners to rethink how they’re paying themselves and their staff—from overtime rules to tips and bonuses. If you run a childcare center, this is a rare opportunity to align your payroll systems and compensation strategies in ways that could save you and your team thousands in taxes between 2025 and 2028.
Here’s a breakdown of what’s in the bill and what it could mean for your business.
What’s in the Bill: At a Glance
From January 2025 through December 2028, the bill introduces:
- No federal income tax on overtime earnings up to $12,500 per person, per year
- No federal income tax on tips or service-based income up to $25,000 per person, per year
While that might sound like it only applies to tipped workers, there are some smart, childcare-specific ways to take advantage of these updates—if you’re prepared.
Why It Matters for Childcare Owners
1. You Might Be Able to Pay Yourself Smarter
Depending on final IRS guidance, center owners could have the option to structure a portion of their pay as overtime. That means part of your earnings could be completely federal income tax-free.
While we’re still waiting for the IRS to confirm how this will work for business owners, now is the time to explore how your pay is set up—and whether it can be adjusted to take advantage of this potential benefit.
Tip: Owners of LLCs, S-corps, or sole proprietorships should talk with a CPA familiar with childcare businesses before making changes.
2. Your Staff Could Take Home More—Without Raising Your Payroll
Many childcare professionals already work overtime. Whether it’s covering late pickups, holiday breaks, or summer programs, extra hours are common—and under this bill, those overtime hours could become a lot more valuable.
With up to $12,500 of overtime income per employee now exempt from federal income tax, your staff could keep more of what they earn—without you needing to increase their hourly rate.
But here’s the catch: You need a system in place that tracks those hours clearly and accurately. If your time tracking is inconsistent, you could miss out on the benefit—or worse, face compliance issues.
3. Bonuses and Incentives Could Be Restructured to Save on Taxes
Offer performance bonuses, referral incentives, or even accept tips for added services like enrichment programs. Those payments may now be eligible for tax-free treatment—up to $25,000 per year per employee.
This opens the door to rewarding your team in ways that not only boost morale but also maximize their take-home pay.
What to do next: Review how you’re categorizing and distributing these types of payments. Adjustments to how and when they’re paid could make a big difference.
4. This Is a Limited-Time Opportunity (2025–2028)
This tax break isn’t permanent. You have a three-year window to align your systems, rethink compensation, and take advantage of these federal tax exclusions. After 2028, unless extended, these benefits will no longer be available.
Waiting too long could mean leaving money on the table for both you and your staff.
What This Looks Like in Real Life
Let’s say you run a center with 15 employees. Five of them regularly work overtime—roughly $6,000 each in extra pay per year. That’s $30,000 of income that could now be completely tax-free for your team.
Potentially, your pay as an owner to include some overtime, or revisiting your bonus structure to qualify under the new tip/incentive rule. These changes, if done thoughtfully, could create real, measurable savings over the next three years. Important, we are awaiting further guidance from the Internal Revenue Service on this issue.
But to get there, you need a plan—and clean systems in place.
How to Get Ready
You don’t need to overhaul your entire business. Start with these steps:
- Review your payroll setup: Can it accurately track and separate overtime pay?
- Update your time-tracking system: Manual or outdated systems won’t cut it. Invest in something reliable.
- Talk with a childcare-focused CPA: They’ll help you understand what applies to you and how to stay compliant.
- Educate your team: Inform them about the benefits this can bring and why accurate time tracking is essential.
- Develop a short-term compensation plan, focusing on the period from 2025 to 2028. Create a strategy now so you’re not scrambling later.
Need Help? That’s What We’re Here For
At Radius Childcare Solutions, we work exclusively with childcare businesses to make sure they’re financially strong, strategically smart, and fully prepared for changes like this.
If you’re wondering how to apply this new tax law to your center—or want someone to help build a game plan—we’ve got you covered.
With Radius, you can:
- Structure your owner pay in a tax-smart way.
- Set up clear systems for tracking staff hours and bonuses.
- Take full advantage of every tax-saving opportunity available.
- Feel confident that your business is on the right track for 2025 and beyond.
Book a free consultation with our team and start turning this short-term tax bill into long-term financial wins for your center.