Sponsors (32)
Makes S‑corp ESOP tax deferral permanent, treats ESOP participants as proportionate owners for SBA eligibility, creates Treasury ESOP assistance office, and adds a DOL Employee Ownership Advocate.
Official title: Amend the Internal Revenue Code of 1986 and the Small Business Act to expand the availability of employee stock ownership plans in S corporations, and for other purposes.
Introduced July 24, 2025 by Steve Daines · Last progress July 24, 2025
The bill expands federal support, clarity, and technical help for ESOPs to boost employee ownership and retirement savings for many workers, while imposing new administrative costs, changing tax incentives (including removing a key deferral), and creating eligibility and implementation complexities that may shift costs or advantages among businesses and taxpayers.
Employees of S-corporations and other ESOP participants gain clearer access to retirement savings and potential wealth-building through preserved ESOP treatment and increased ESOP adoption, improving retirement readiness for many middle-class workers.
Small-business owners retain small-business status and continued access to SBA loans, contracting preferences, and related benefits when majority ownership is by an ESOP, and receive greater timing certainty about related tax/rule changes.
Small businesses and potential employee-owners gain free technical assistance, outreach, and federal coordination (Treasury, SBA, Commerce) to set up ESOPs and access capital, making employee-ownership more achievable and supporting business continuity.
Sellers of employer stock who planned to use the §1042(h) tax deferral will lose that option for sales after enactment, causing higher immediate taxable income and larger near-term tax bills for affected sellers.
Treating ESOP participants as direct owners and preserving ESOP-based small-business status could expand program eligibility and create larger SBA program costs paid by taxpayers while increasing administrative and staffing costs to support new offices and the Advocate.
Aggregating ESOP participant ownership for size/eligibility calculations could push some firms over small-business thresholds, making them ineligible for programs and preferences they previously used.
Based on analysis of 6 sections of legislative text.
Creates permanent, government-supported rules and offices to promote employee ownership of S corporations through ESOPs. It makes a previously time-limited tax deferral for sellers to S‑corporation ESOPs permanent (by tying it to this Act), changes Small Business Act rules so ESOP-owned firms can retain small-business status by treating participants as proportionate owners, establishes a Treasury office to provide outreach and technical assistance, and creates an Employee Ownership Advocate at the Department of Labor with reporting and coordination duties.