Key takeaways:
- OBBB made changes to many areas of business and individual tax, but there are three in particular that may impact the entity planning of staffing firms directly
- The updates will present a blend of opportunity and new challenges, requiring an evaluation of current strategies and considerations to improve operational effectiveness and maximize tax savings
- Guidance from a qualified tax professional is critical to ensure compliance and maximize the return on new strategies
“One Big Beautiful Bill” (OBBB) brings significant tax changes, and there are a few in particular that staffing firms and temporary staffing agencies need to understand. From securing significant deductions to altering international strategies, these changes could impact your bottom line and long-term planning.
Our Staffing Practice has outlined the three biggest changes that will impact the staffing industry and its individual firms.
Section 199A: 20% Deduction now permanent
Section 199A allows eligible owners of pass-through businesses to deduct up to 20% of their qualified business income (QBI) and was to expire at the end of 2025. It has now been made permanent, and staffing firms set up as pass-through businesses should be able to take full advantage of this provision as a Qualified Trade or Business.
While many professional service firms face restrictions under Specified Trade or Business (SSTB) rules, staffing firms are generally not classified as SSTBs. That means your staffing firm may be able to take full advantage of the deduction, especially since staffing firms tend to have high W-2 wage expenses, which are a key factor in maximizing the benefit.
Staffing firm owners can now incorporate the 199A deduction into long-term planning. If you operate as an S Corp or other pass-through entity, this is a powerful tax benefit that is here to stay.
Section 1202: Expanded tax savings on business sales
OBBB made changes to Section 1202, which allows noncorporate taxpayers to exclude a portion of capital gains from the sale of Qualified Small Business Stock (QSBS). Updates included:
- The gain exclusion cap increases from $10 million to $15 million (or 10x adjusted basis, whichever is greater).
- The holding period becomes more flexible:
- 3 years = 50% exclusion
- 4 years = 75% exclusion
- 5 years = 100% exclusion
Those planning a future sale should explore whether a C Corp structure could create long-term tax advantages. With enhanced flexibility and higher caps, Section 1202 is now a more attractive option for exit planning for staffing firms.
GILTI renamed and reshaped as NCTI
Staffing firms with international operations, like offshore recruiting or shared service centers, have long been affected by the GILTI (Global Intangible Low-Taxed Income) regime.
OBBB renames this provision to Net CFC Tested Income (NCTI) and makes important changes to the tax calculation. Here is what is changing for tax years beginning after December 31, 2025:
- The “deemed tangible income return” (a 10% return on CFC assets that was previously excluded) is eliminated.
- The deduction percentage for foreign earnings is reduced to 40%, down from 50%.
These changes increase the effective tax rate on foreign earnings from 10.5% to 12.6%. Staffing firms with overseas subsidiaries will likely face a higher tax burden under the new rules.
Time to reevaluate your strategy
With Section 199A made permanent, Section 1202 expanded, and GILTI reshaped into NCTI, staffing firm owners should act now. Specific considerations include:
- Evaluating your current business structure and making adjustments to optimize it
- How international income is being handled under the new rules and how it may impact your business
New provisions from OBBB present a mix of opportunity and challenge. Staying ahead of these changes will help staffing firms remain competitive and tax-efficient well into the future.
These specific updates will require guidance from a qualified tax professional with extensive staffing industry experience. Fill out the form on this page to connect with a member of our industry-leading Staffing Practice.
For news: The new law, informally known as “One Big Beautiful Bill,” carries several implications for staffing firms. We have been analyzing the new law and have identified the most important provisions for the staffing industry. This law is so dense that we have broken down the most critical provisions into a series of insights.
Our first OBBB insight covers new provisions related to entity-planning considerations. Understand how these provisions may impact your business and connect with us for further guidance.
Article shared by ISSA Partner UHY LLP
