According to a recent Wall Street Journal article, executives report that faster deductions make it cheaper to add staff at a time when cash flow is critical.

Tech startups, in particular, are revisiting their U.S. hiring plans after Congress revived a popular tax deduction. Executives and tax professionals believe this change could also stimulate broader domestic hiring.  A recent tax reform, passed under President Trump, is prompting tech startups to reconsider their hiring strategies and favor domestic talent over offshore outsourcing. The new legislation reinstates a popular tax deduction, making U.S.-based research and development significantly more cost-effective.

For example, Finta, a San Francisco-based tax-and-accounting software startup with fewer than a dozen employees, now plans to fill five U.S.-based positions, including software engineers, instead of hiring abroad by the end of the year. Founder Andy Wang told the Journal, “The change makes domestic R&D far more attractive.”   

This shift could signal a broader trend among startups and small tech firms, potentially revitalizing local job markets and reducing reliance on overseas labor.    

Background: A recent change in U.S. tax law—specifically, the reinstatement of a popular deduction for domestic research and development (R&D) expenses—is prompting many tech startups to rethink their hiring strategies. Previously, startups often outsourced software development and engineering work to countries like India or Eastern Europe, particularly through the H-1B visa program. to save costs. However, stricter immigration policies, lengthy processing delays, and heightened competition for limited visas have forced companies to rethink their hiring strategies.

But now, the financial incentives for keeping R&D in the U.S. have improved.    

Tax Policy Impact on R&D Hiring

A key component of President Trump’s comprehensive tax legislation introduces an immediate tax benefit for domestic research and development investments. Starting this year, companies can claim full tax deductions for R&D spending in the same year it occurs—but this accelerated benefit applies exclusively to U.S.-based expenditures. Meanwhile, R&D investments abroad, where labor and operational costs are typically lower, must be deducted over a 15-year period.

The WSJ article reported that this policy shift is proving transformational for R&D-intensive companies. Michael Butts, CEO of Burtch Works, a staffing agency focused on U.S. data science and AI talent, reports a dramatic surge in demand for domestic developers since early July. “We’re seeing 15% to 20% increased demand, and the economic uncertainty hasn’t dampened this trend,” Butts noted.

The hiring momentum is backed by concrete data. ZipRecruiter reports that R&D job postings have already reached two-thirds of last year’s full quarterly volume just five weeks into Q3. This acceleration began during the second quarter as the tax legislation gained traction, marking a significant reversal after two consecutive years of declining R&D hiring.  

The restored immediate R&D deduction policy carries a hefty price tag—$141 billion in lost federal revenue over 10 years, with nearly $54 billion impacting this year’s budget. The large immediate cost reflects provisions allowing companies to retroactively claim accelerated deductions for R&D investments made since 2022.

While substantial, tax policy alone doesn’t dictate corporate strategy. Companies must balance the R&D incentive against foreign tax considerations, international versus domestic labor costs, and regional talent availability when making operational decisions.

The benefit’s effectiveness depends heavily on company characteristics. Cash-rich technology giants can afford to wait for tax advantages, while unprofitable startups and early-stage companies cannot utilize deductions without taxable income to offset.

PricewaterhouseCoopers’ national tax office co-leader Pat Brown acknowledges the nuanced impact: “It could put a thumb on the scales for doing more in the U.S., but again that’s never a frictionless proposition. There are a lot of other factors at play. Is it going to make a difference at the margins? Absolutely.”    

While it’s difficult to predict whether the tax-law change will lead to an overall increase in tech-oriented jobs in the U.S., it is likely to stimulate R&D spending, which tends to benefit the economy, according to Timothy Simcoe, a Boston University business professor.

“The short-run impact may be to increase the wages of R&D labor, which in the long run should lead to more innovation,” Simcoe said.

For years, companies could immediately deduct R&D spending, a provision that was even included in the 2017 tax overhaul. However, this provision expired in 2022 for budgetary reasons, which effectively increased the cost of U.S. hiring for many tech companies. Against many business leaders’ expectations, Congress didn’t renew it quickly. This meant companies were forced to spread domestic R&D deductions over five years, and foreign deductions over 15. This change squeezed cash flow by requiring companies to pay more tax upfront and wait for the deduction.

For example, Turing Labs, an AI startup in Sunnyvale, California, had been considering hiring software engineers in Canada or Latin America to offset the longer wait for a full deduction. However, the recent tax-law change cuts the cost of domestic hiring by 20% to 25%. As a result, the company now plans to add five Bay Area software engineers by the fourth quarter, instead of hiring abroad.

“We were struggling—should we hire now or should we pause?” said Manmit Shrimali, the co-founder and CEO. “Now we can hire more people in the U.S.”

Conclusion

The U.S. tech job market in 2025 is marked by rapid transformation: tax incentives are reviving domestic hiring, but workers and startups alike face pressure to adapt to AI-driven demands and a fiercely competitive talent landscape.