New Tax Break Gives Smallest Businesses Up to 8 Years of Payroll Tax Deductions Starting in 2026

The Support Small Business Growth Act of 2025 is setting up a temporary, but significant, payroll tax deduction aimed squarely at the smallest operations. If you run a business with 15 or fewer full-time employees and meet the standard gross receipts test (meaning you’re not a massive company pretending to be small), you could qualify for this break starting in the 2026 tax year. The core idea is to give these businesses a deduction equal to 12% of the wages paid to a select group of their lowest-paid workers, providing direct financial relief right where it counts—on the payroll.

The Fine Print: Who Gets the Break and For How Long

This isn't a permanent fixture; the deduction has an expiration date, winding down after the 2033 tax year. To qualify, your business must certify it has 15 or fewer full-time employees (as defined by IRC section 4980H(c)(4)) and meets the gross receipts test (SEC. 2). This tight limit means a small restaurant, a local plumbing company, or a boutique web design firm stands to benefit, while the slightly larger operations—say, a regional chain with 18 employees—are completely left out of the deal.

The Tapering Deduction: Max Benefit Now, Less Later

The most interesting part of this bill is the sliding scale used to calculate the benefit. Businesses can only designate a limited number of their lowest-paid employees for the deduction, and highly compensated employees are explicitly excluded (SEC. 2). The maximum number of designated employees starts high and tapers off quickly. From 2026 through 2030, you can claim the deduction for up to 10 employees. This drops to 8 in 2031, 6 in 2032, and finally 4 in 2033 before the program ends.

For example, in 2026, a qualified business can designate 10 employees. The deduction is tiered based on a per-employee wage cap. The first 8 designated employees have a maximum wage cap of $8,000 each. The 9th employee gets a $6,000 cap, and the 10th gets a $4,000 cap. If you pay an employee $40,000, the 12% deduction is calculated on the cap, not the full salary. This structure strongly encourages small businesses to keep their lowest-paid staff employed, as the benefit is tied directly to those wages.

Real-World Impact and Administrative Headaches

For a small business owner, this means a tangible reduction in the cost of hiring and retaining staff. If you’re running a small machine shop, this deduction could free up cash flow to invest in new equipment or simply weather a slow quarter. However, the administrative side looks complex. The business has to track which employees are designated, ensure they are the 'lowest-paid' (excluding highly compensated staff), and constantly adjust to the decreasing number of eligible employees and changing caps over the eight-year period. This level of detail might be a challenge for tiny operations that don't have a dedicated HR or payroll department.

While the bill offers a clear benefit to the smallest businesses, the strict 15-employee cutoff means that businesses just over that threshold are penalized, creating a potential incentive for companies near the limit to freeze hiring or even restructure to stay eligible. Furthermore, while the intent is to help the lowest-paid, the explicit exclusion of highly compensated employees might cause some businesses to manage compensation packages right below that threshold to maximize the tax benefit, potentially leading to wage stagnation for employees who are close to the cutoff.