Small Business Job Protection Act of 1996: Key Benefits, Wage Updates & Tax Changes
Explore how the Small Business Job Protection Act of 1996 transformed small business operations by raising minimum wages, simplifying pension plans, and adjusting tax regulations to boost competitiveness.
What Is the Small Business Job Protection Act of 1996?
The Small Business Job Protection Act of 1996 is landmark U.S. legislation aimed at empowering small businesses by enhancing their competitiveness and easing operational challenges. This act raised the federal minimum wage, streamlined pension regulations, and revised tax policies to benefit small enterprises. Additionally, it refined rules for S corporations and simplified 401(k) plan administration, encouraging employers to offer attractive retirement benefits.
Key Highlights:
- Increased minimum wage from $4.25 to $5.15 per hour in 1996, with subsequent raises enhancing worker earnings.
- Simplified pension rules, making it easier for small businesses to provide 401(k) plans.
- Expanded S corporation shareholder limits from 35 to 75, allowing more businesses to qualify.
- Lowered taxes and adjusted regulations to support small business growth.
Understanding the Act’s Impact on Small Businesses
Signed into law by President Bill Clinton on August 20, 1996, the Act was sponsored by Representative Bill Archer (R-TX) and focused on leveling the playing field for small businesses against larger corporations. By increasing the minimum wage and easing tax and pension complexities, it helped small firms attract and retain employees through better benefits and competitive wages.
The Act also amended the Internal Revenue Code to allow small businesses tax deductions up to $25,000, redefined eligibility for work opportunity tax credits, and permitted financial institutions and certain tax-exempt organizations to participate as S corporation shareholders.
Furthermore, the legislation addressed foreign ownership concerns and foreign tax compliance, ensuring small businesses maintain regulatory alignment while expanding their capabilities.
Special Considerations and Legacy
One notable provision was the creation of the Financial Asset Securitization Investment Trust (FASIT) to facilitate asset-backed securities. Although later repealed due to misuse by entities like Enron, the Act’s core provisions continue to influence small business policies.
Since the Act’s passage, the federal minimum wage has increased further, reaching $7.25 per hour in 2009, where it remains a critical baseline for worker compensation.
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