DEFINITION of Small Business Job Protection Act Of 1996
The Small Business Job Protection Act Of 1996 is a piece of American legislation that increased the minimum wage requirements, simplified pension rules, and adjusted taxes for small businesses. The act also made adjustments to S Corporation regulation, rules surrounding safe harbor provisions, and rules governing worker employment status. It furthermore simplified the administration and maintenance of 401(k) defined contribution plans with the aim of making more employers want to provide this type of retirement plan to its employees.
The law is one of a several such acts that have been passed by Congress and signed by the President in the years before and since, aimed at helping to make small businesses competitive employers relative to larger firms.
BREAKING DOWN Small Business Job Protection Act Of 1996
The Small Business Job Protection Act Of 1996 is an important piece of legislation that makes it easier for small businesses in the United States to operate and create jobs. Besides increasing the minimum wage, the act significantly expanded the number of corporations that could take advantage of S Corporation elections, including the allowance of some banks and financial services firms to become this type of corporation. It also made it far simpler for small businesses to offer 401(k) retirement accounts, which allowed to them to compete with larger companies to attract employees with their benefits packages.
The law has several sub-parts. The first part amends the Internal Revenue Code (IRC) to increase to $25,000 the amount which a small business may expense for tax purposes. The second decreases from 40 to 35 percent the work opportunity tax credit, and extends and makes other revisions to such credit, including redefining members of targeted groups. The third part increases from 35 to 75 the number of S corporation shareholders permitted in a firm, allowing for larger firms to become this type of entity. This section also permits financial institutions to hold safe harbor debt and permits certain tax-exempt organizations to become S corporation shareholders. The next section deals with pension simplification, including articles dealing with 401(k) individual retirement accounts and the ability for employers to match retirement contributions made by employees. Several other subsections deal with foreign ownership of small businesses and foreign tax compliance.
The law also modified the minimum wage requirements, increasing it from $4.25 an hour at the time to $5.15 an hour (the U.S. federal minimum wage has been increased further in the years since), and made overtime compensation more generous for workers.