Payroll tax deduction for small businesses

(a)

In general

Part VI of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after section 176 the following new section:

177.

Payroll deduction for qualified small businesses

(a)

In general

In the case of a qualified small business, in addition to the deduction allowed by section 162(a)(1), there shall be allowed as a deduction an amount equal to the sum of the applicable amounts determined under subsection (b)(2) with respect to each full-time employee of the employer which has been designated by such employer pursuant to subsection (b)(1).(b)

Limitations; applicable amount

(1)

Designation of employees

(A)

In general

For purposes of subsection (a), with respect to any taxable year, the full-time employees designated by the employer (at such time and in such manner as the Secretary may provide) shall—(i)not exceed the applicable maximum number of employees,(ii)only include those full-time employees with the lowest wages paid during such taxable year relative to all other full-time employees of such employer, and(iii)not include any highly compensated employee.(B)

Applicable maximum number

For purposes of subparagraph (A), the applicable maximum number with respect to any qualified small business is—(i)10, in the case of a taxable year beginning in 2026, 2027, 2028, 2029, or 2030,(ii)8, in the case of a taxable year beginning in 2031,(iii)6, in the case of a taxable year beginning in 2032,(iv)4, in the case of a taxable year beginning in 2033, and(v)zero thereafter.(2)

Applicable amount

(A)

In general

For purposes of subsection (a), with respect to each full-time employee designated pursuant to paragraph (1), the applicable amount shall be an amount equal to the lesser of—(i)the applicable wage limitation, or(ii)12 percent of the wages paid to such employee during the taxable year.(B)

Applicable wage limitation

For purposes of subparagraph (A), the applicable wage limitation is—(i)$8,000, with respect to the number of full-time employees designated pursuant to paragraph (1) which is equal to—(I)the applicable maximum number with respect to the qualified small business for the taxable year, reduced by(II)2,(ii)$6,000, with respect to 1 additional such employee, if applicable, and(iii)$4,000, with respect to 1 additional such employee, if applicable.(c)

Qualified small business

For purposes of this section, the term qualified small business means, with respect to a taxable year, a small business concern (as defined under section 3 of the Small Business Act) which—(1)as of the last date of such taxable year—(A)has not more than 15 full-time employees, and(B)meets the gross receipts test of section 448(c), and(2)certifies to the Secretary, at such time and in such manner as the Secretary shall prescribe, that such concern meets the requirements of this subsection for the taxable year.(d)

Definitions

For purposes of this section—(1)

Full-time employee

The term full-time employee has the meaning given such term by section 4980H(c)(4).(2)

Highly compensated employee

The term highly compensated employee has the meaning given such term by section 414(q).(e)

Termination

This section shall not apply to taxable years beginning after December 31, 2033.

(b)

Clerical amendment

The table of sections for part VI of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after the item relating to section 176 the following new item:

Sec. 177. Payroll deduction for qualified small businesses.

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2025.