# The Pulse: Section 174 Is Reversed! Mostly, That Is  ## Metadata - Author: [[Gergely Orosz]] - Full Title: The Pulse: Section 174 Is Reversed! Mostly, That Is - Category: #articles - Summary: A US tax rule called Section 174 made companies spread out software developer salary costs over many years, hurting hiring and profits. A new law lets companies deduct these salaries all at once again for US workers, and they can fix past tax filings to get money back. However, costs for foreign developers still must be spread out, which may lead US companies to hire fewer workers outside the US. - URL: https://blog.pragmaticengineer.com/the-pulse-section-174-is-reversed-mostly-that-is/ ## Highlights - In short, salaries paid to software engineers can no longer be deducted as a cost, like all other employee wages are. Instead, they must be amortized over 5 years for developers in the US, and for 15 years (for developers outside the US.) ([View Highlight](https://read.readwise.io/read/01k0jj8kdbe9mxmw9np42wx091)) - The regulation was designed to increase tax revenue from tech companies and entered the tax code, applying to all software developers, except those in the oil and gas sectors! Due to Section 174, the US became the only country in the world where developer salaries cannot be expensed in the same tax year. ([View Highlight](https://read.readwise.io/read/01k0jj7323ezghp49zenx3fbg9)) - **But things have changed. Some great news is that part of S174 is struck off , fully for US employees.** Buried deep [inside Trump’s “Big, Beautiful Bill”](https://www.congress.gov/bill/119th-congress/house-bill/1/text?ref=blog.pragmaticengineer.com) is a provision that allows companies to keep deducting expenses related to software development in the same tax year. Basically, developer salaries can be deducted just like before 2023. ([View Highlight](https://read.readwise.io/read/01k0jj9k45fpp8e0k6ajmbkgmh)) - In the original draft, this was planned to be a temporary relief until 2030. But in the final bill it was removed permanently. ([View Highlight](https://read.readwise.io/read/01k0jj9twcfbx24a1emx3d3581)) - **Additional good news is that costs can be expensed retroactively.** Also added in the bill is how companies can do two years of “catch-up:” businesses can re-file tax returns using the *old* expensing rules 2022-2024. Basically, companies hurt by having to pay more tax in 2022 to 2024 can go back and claim back the surplus they paid. ([View Highlight](https://read.readwise.io/read/01k0jjaathctn16bzhv8rrwgk9)) - **The remaining thing that stings for companies is how foreign devs still need to be amortized for 15 years.** US companies making foreign software development-related expenditures like hiring staff, or paying for contracts abroad, are still mandated to be expensed over 15 years. ([View Highlight](https://read.readwise.io/read/01k0jjbd8b5hssgsrxf1vcttc1)) - **I expect US companies to hire more in the US, and less outside of it.** The updated Section 174 very clearly incentivises doing so. ([View Highlight](https://read.readwise.io/read/01k0jjcmm2h7p5vhrrf2eaf2zx))