Open-Source Tax Credit Would Better Compensate Tech Developers

Open-source software is quite common in corporate and personal devices, and is widely used in many government applications. It is collaboratively developed, with freely available source code, and underpins most technology in use. A 2024 Harvard study valued it at $8.8 trillion.

A software project may be initially undertaken by a single developer as a hobbyist project, but writing a piece of code is just the beginning. Maintenance and security updates require long-term commitments, often by an entire community of developers.

There is insufficient incentive for additional developers to get involved to maintain a project. Allowing skilled developers to volunteer on open-source projects and deduct related expenses, including a portion of their time dedicated to these projects, would recognize their invaluable work and encourage broader participation and, thereby, oversight.

Status Quo

The idea of providing an open-source tax credit for developers with financial outlays for things such as software and equipment isn’t new. Such a credit, which has been proposed at the state level, conceivably would further their contributions to free and open-source projects.

But in the years since those initiatives died on the vine, world economies have only become more reliant on open-source projects. The recent XZ incident, wherein a piece of malicious code was found to be hidden for years in a common utility, underscores the risks of wringing value from such projects without providing a benefit in return—or at least helping to offset costs.

The alternative is to let corporations, educational institutions, government entities, and everyone in between continue to lean on open-source projects without sufficient oversight or adequate compensation for those who develop and maintain these projects.

FLOSS Credit

A tax credit for up to $2,000 of costs associated with contributions to a project, the code of which is released under an open-source license, would go a long way toward motivating more developers to get involved.

Such a credit would enable more developers to invest their time and resources into securing and enhancing open-source projects. Instead of demanding developers moonlight doing what they do for a living for free, they would be working to offset their tax burden, converting their volunteer efforts into a recognized contribution to the software commons.

The broader implications of such a credit are as important as the financial benefits. In addition to immediate financial assistance to open-source developers, such a policy would acknowledge the social value of open-source development.

Equating such contributions to more traditional charitable endeavors signals appreciation for the role such projects and their contributors play in advancing technology, education, and access.

Contributions to open-source projects are the software developer equivalent to medical doctors who engage in charitable practices and attorneys who take on pro-bono projects. Recognizing their work as such would help mitigate financial barriers to participation and align developers’ interests with the broader societal benefit of a secure and robust open-source software sector.

Administrative Challenges

Implementing such a credit system would of course face some challenges, such as the feasibility of quantifying contributions—or how an individual software developer’s labor should be valued in their contribution to a given project. Setting an hourly rate for calculating labor contributions would be the simplest policy solution.

According to the US Bureau of Labor Statistics, the mean hourly wage for a software developer in May 2023 was $66.40—the hourly rate for purposes of an open-source tax credit calculation should be adjusted with the mean hourly wage or a comparable metric.

The risk of fraudulent claims can’t be overstated, as it can be difficult to prove and quantify contributions made to a project. This is why the policy design for such an open-source tax credit should be undertaken with input from open-source communities, tax policy experts, and policymakers.

Modern collaborative tools and platforms for software development, such as GitHub and GitLab, offer traceable records of individual contributions through code repository logs. Code contributions can be quantified and proven, and such a tax credit is feasible given community involvement—open-source policy design to help mold and form the open-source tax credit.

Such an initiative to provide a tax credit for open-source software would address a critical blind spot in our technological infrastructure. It would incentivize contributions by software developers that might otherwise be unable to lend their talents to open-source projects, plus strengthen the security and robustness of open-source software—thereby ensuring its sustainable development in a world increasingly reliant upon it.

Andrew Leahey is a tax and technology attorney, principal at Hunter Creek Consulting, and adjunct professor at Drexel Kline School of Law. Follow him on Mastodon at @andrew@esq.social

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