Section 174 Reversal: What 2025 Means for Tech Hiring

2025-07-06 - 5 min read
Daniel Young
Daniel Young
Founder, DRYCodeWorks

With a likely reversal of Section 174’s R&D amortization rules on the horizon, tech companies are preparing for a new era in hiring and innovation. Here’s what founders and engineering leaders need to know about the future of tax, hiring, and growth in the software sector.

Section 174 Reversal: What 2025 Means for Tech Hiring

The landscape for tech hiring in the US is about to change dramatically. With Congress poised to reverse Section 174’s R&D amortization rules, software companies may soon see a return to immediate expensing for R&D—potentially reigniting hiring and innovation across the industry.

Key Takeaways for Founders & CEOs

  • Immediate R&D expensing is likely to return, freeing up cash for hiring and growth.
  • Domestic hiring will become more attractive than offshoring due to tax incentives.
  • Plan for both short-term hiring surges and long-term uncertainty (sunset in 2029).
  • Review your R&D tracking and compliance processes now to avoid future headaches.
  • Stay agile—policy changes may create both opportunities and risks for your team.

Background

Since 2022, Section 174 required businesses to amortize R&D spending— including software engineering salaries—over 5 or 15 years, instead of deducting them immediately. This led to higher tax bills, cash flow crunches, and a chilling effect on domestic tech hiring. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, marks a pivotal moment for software engineering hiring practices.[1] The new Section 174A temporarily restores immediate expensing of domestic R&D expenditures from 2025 through 2029, while maintaining the 15-year amortization for foreign R&D.[2]

A bipartisan bill—the American Innovation and R&D Competitiveness Act of 2025 (H.R. 1990)—is advancing in Congress. If passed, it will eliminate mandatory amortization and restore the old immediate-expensing option, retroactive to 2022.[3]

Restoring immediate R&D expensing provides immediate cash flow relief for tech companies that struggled under the old rules.[4] Companies can now deduct 100% of domestic R&D expenses in the year incurred, unlocking an estimated $80 billion in annual tax relief.[5]

Why Does This Matter for Hiring?

Domestic hiring becomes far more attractive: Companies can deduct domestic contractor costs immediately, while foreign contractor costs are spread over 15 years.[6] The OBBBA will likely accelerate the shift toward U.S.-based engineering, as the tax code now provides a clear financial incentive to prioritize domestic talent.[2] Meanwhile, the 15-year amortization for foreign R&D creates significant economic friction for international contractor arrangements.[6]

  • Immediate deduction of domestic R&D and hiring costs
  • Foreign R&D costs must still be amortized over 15 years
  • Clear incentive to hire and invest in U.S.-based teams

The legislation also provides retroactive relief for companies that suffered under Section 174 since 2022. Small businesses can amend prior returns for refunds, while larger companies can accelerate remaining unamortized R&D costs through catch-up deductions[8].

However, the five-year sunset provision (2025–2029) creates long-term planning challenges, as companies must weigh immediate tax benefits against future uncertainty.[9] The sharp distinction between domestic and foreign R&D may create artificial market segmentation, incentivizing companies to restructure operations for tax purposes rather than business efficiency[10]. The significant tax disadvantage for foreign R&D may also incentivize companies to develop circumvention strategies that nominally relocate international work to domestic jurisdictions[11].

Looking Ahead

If the bill passes, expect a rebound in tech hiring and a renewed focus on domestic innovation. Companies that delayed projects or cut headcount due to Section 174 may quickly ramp up recruiting, especially for US-based engineers. The labor market could tighten, and competition for top talent may intensify as firms race to capitalize on restored tax benefits.

  • Competition for talent will intensify: Immediate expensing is likely to drive up demand and wages for domestic software engineers, especially in tech hubs[12].
  • Startups and small businesses face unique challenges: The temporary nature of Section 174A means balancing immediate hiring needs with future tax uncertainty[8].
  • Compliance will get more complex: Companies must implement sophisticated tracking and allocation systems for tax compliance, which may disproportionately affect smaller firms[16].
  • International strategy may need to change: Preferential treatment of domestic R&D could create trade tensions and incentivize restructuring[17].
  • Industry impacts will vary: Tech, biotech, and manufacturing will see the biggest effects, with domestic investment accelerating[9][2][15].
  • Expect some volatility: The transition to Section 174A may create short-term market volatility as companies adjust hiring and contractor strategies .

What Should Tech Leaders Do Now?

  • Monitor the bill’s progress: Stay updated on Congressional action. If the reversal passes, be ready to adjust hiring and R&D budgets quickly.
  • Model new hiring scenarios: Plan for how restored expensing could impact your ability to hire, retain, and invest in engineering talent.
  • Revisit offshoring decisions: With the tax advantage for domestic R&D returning, reassess whether US-based hiring now makes more sense for your business.
  • Prepare for a competitive market: If hiring surges, expect increased competition for engineers. Start building your talent pipeline now.

Avoid common pitfalls as you plan for these changes: Don’t delay hiring or R&D investments solely in anticipation of new policies, as timing remains uncertain. Ensure your accounting and compliance systems are updated for the new expensing rules, and don’t assume the sunset provision will be extended—have a contingency plan for 2029 and beyond. Finally, consider the impact on international teams and contractor arrangements to avoid unexpected complications.

The bottom line: The Section 174 reversal could mark a turning point for US tech. By restoring immediate R&D expensing, Congress may unleash a new wave of hiring, innovation, and growth. Tech leaders who prepare now will be best positioned to seize the opportunities ahead.

Footnotes