New Tax Deduction Encourages R&D Hiring in US

Tech startups are reportedly hiring more software engineers and other positions related to research and development (R&D) in the United States, rather than overseas, due to a new tax deduction.

The tax deduction, which is part of President Donald Trump’s One Big Beautiful Bill, lets companies take deductions for U.S. spending on R&D in the same year as the expense, while those for foreign spending on R&D are spread out over 15 years, the Wall Street Journal (WSJ) reported Wednesday (Aug. 13).

Congress has allowed immediate research deductions in the past, but the most recent one expired in 2022, which effectively raised the cost of hiring in the U.S., according to the report. Since that time, tax deductions for U.S. spending on R&D have been spread over five years.

The report said that the passage of the new tax deduction contributed to a 15% to 20% increase in demand for developers at staffing agency Burtch Works and an increase in job ads for R&D-related positions on online hiring platform ZipRecruiter.

While the change in tax deductions “could be transformational” for companies with R&D-related costs, there are other factors that also drive hiring decisions, per the report. These include foreign tax treatment, the overall cost of hiring and the availability of skills.

In addition, the biggest companies are more likely to be able to wait for a tax deduction, and companies operating without taxable profits won’t benefit from a deduction, the report said.

The White House said in an article posted Aug. 6 that the full expensing for R&D is one of the tax reforms in the One Big Beautiful Bill that have boosted companies’ cash flow, job-creating investments and business.

The article quoted Johnson & Johnson Executive Vice President and Chief Financial Officer Joseph Wolk as saying the R&D provision is among those that provide “certainty” for the company’s commitment to invest in the U.S.

It also quoted Booz Allen Hamilton Chief Financial Officer Matt Calderone as saying the R&D provision in the One Big Beautiful Bill “will result in roughly $200 million federal cash tax benefit this fiscal year.”