One Big, Beautiful Bill (OBBB) – What It Means for Startup Employees and Investors

The “One Big, Beautiful Bill” (OBBB), set to take effect beginning in 2026, makes several changes to U.S. tax law that impact startup employees, early investors, and equity holders. Some of these are headline wins (higher AMT exemptions, expanded QSBS benefits), but there are also caveats worth understanding.

AMT Updates

What Changed

• Higher AMT exemptions from the 2017 Tax Cuts and Jobs Act (TJCA) are now permanent (still indexed for inflation).
• Phase-out thresholds reset lower: $500,000 (single) and $1,000,000 (joint).
• Phase-out rate doubles: 25% → 50%.

Why It Matters

• Middle-income employees exercising ISOs benefit from permanently higher exemptions.
• High earners will hit AMT faster because phase-outs start sooner and ramp twice as quickly.

Note: Exemption dollar amounts are inflation-indexed; confirm the latest IRS figures for the current year.

QSBS (Qualified Small Business Stock) Updates

Changes

• Cap increase: QSBS exemption cap raised from $10M → $15M per issuer.
• Holding period shortened: For stock issued after July 4, 2025:
  
  • 3 years = 50% exclusion
  • 4 years = 75% exclusion
  • 5 years = 100% exclusion
• Asset test increase: Company eligibility expands from $50M → $75M in gross assets, slightly widening the pool of companies that qualify.

The QSBS exemption cap change mainly benefits repeat founders and larger investors, while most startup employees rarely come close to hitting the original $10M cap. Because most QSBS-eligible companies already take 5+ years to exit, the shortened holding periods mainly matter at the margins: early liquidity events such as secondaries or founder cash-outs during financing rounds, and the occasional early exit that would benefit everyone. The more meaningful shift may be the higher asset test, which opens QSBS to larger, slightly more mature companies. That expands eligibility to more employees and reduces some of the risk that comes with exercising early at a very young startup.

Challenges and Frictions

Capturing QSBS as an employee is harder than it looks on paper. You need to be at the company early enough and have enough conviction in its future to put your own capital at risk, often years before liquidity is even possible. Unlike investors, who buy preferred shares and spread risk across portfolios, employees must typically concentrate risk in a single company.

Even with the new cap and asset test, most QSBS-eligible companies remain small, and transfer restrictions plus limited buy-side demand still present bigger barriers than tax policy itself. The likelihood of a QSBS company reaching liquidity before the 5 year hold period is fairly low.

Awareness and Employee Behavior

Companies sometimes alert employees when QSBS eligibility is about to expire, and OBBB may increase overall awareness. That could push more employees to exercise earlier, but the real-world impact is likely modest and not enough on its own to drive any material change in employee activity.

Big Picture

Overall, the OBBB is a positive trend for startup equity taxation. It may lead to more shareholder-friendly policies in the future, but for now liquidity challenges (limited buyers, transfer restrictions, early-exercise risk) still outweigh tax policy for most employees. In practice, the OBBB will have the largest impact on founders and early investors through QSBS, while higher AMT exemptions provide incremental relief for employees exercising ISOs.

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Written by Jordan Long, Marketing Lead at ESO Fund