Posts Tagged ‘Tax Credits’

HIRE Act Retention Credit

Tuesday, September 27th, 2011

HIRE Act Retention CreditTax Credits

After all of the dust settled on the March 18, 2010 Hiring Incentives to Restore Employment (HIRE) Act, many businesses are forgetting that the Act provided a second opportunity for tax savings based on retention of HIRE Act eligible employees.

The HIRE retention credit is a general business credit to encourage retention of new hires and will be claimed on the employer’s income tax return. The amount of the credit is the lesser of $1000 or 6.2 percent of wages (as defined for income tax withholding purposes) paid by the employer to the retained qualified employee during the 52 consecutive week period. The qualified employee’s wages for such employment during the last 26 weeks must equal at least 80% of wages for the first 26 weeks.  This credit cannot be carried back to years beginning before March 18, 2010, but may be carried forward. The credit will be claimed on the employer’s income tax return.
*PCS does not apply this credit as it is a credit on your business tax return.

HIRE Act: Questions and Answers for Employers

From IRS Website www.IRS.gov

Under the Hiring Incentives to Restore Employment (HIRE) Act, enacted March 18, 2010, two new tax benefits are available to employers who hire certain previously unemployed workers (“qualified employees”).

The first, referred to as the payroll tax exemption, provides employers with an exemption from the employer’s 6.2 percent share of social security tax on wages paid to qualifying employees, effective for wages paid from March 19, 2010 through December 31, 2010.

In addition, for each qualified employee retained for at least 52 consecutive weeks, businesses will also be eligible for a general business tax credit, referred to as the new hire retention credit, of 6.2 percent of wages paid to the qualified employee over the 52 week period, up to a maximum credit of $1,000.

Helpful Links

Business Credit for Retention of Certain Newly Hired Individuals in 2010

HIRE Act Flyer from IRS

Are You Missing Out? – PCS Blog Entry

Article Submitted By:

Bob Willbanks
VP of Sales & Marketing
Payroll Control Systems
763.746.1934 Direct
bwillbanks@pcspayroll.com

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney, CPA or HR Professional.

Small Business Health Care Tax Credit

Tuesday, January 25th, 2011

Health Care Tax CreditIf you are a small business and you pay at least 50 percent of your employee’s health insurance premiums, you may be eligible for a tax credit of up to 35% of the premiums you have paid.

On December 2nd, 2010, the IRS has released final guidance for small employers eligible to claim the new small business health care tax credit for the 2010 tax year. Today’s release includes a one-page form and instructions small employers will use to claim the credit for the 2010 tax year.

New Form 8941, Credit for Small Employer Health Insurance Premiums, and newly revised Form 990-T (draft) are now available on IRS.gov. The IRS also posted on its website the instructions to Form 8941 and Notice 2010-82, both of which are designed to help small employers correctly figure and claim the credit.

More About the Small Business Health Care Tax Credit
Included in the Affordable Care Act enacted in March, the small business health care tax credit is designed to encourage both small businesses and small tax-exempt organizations to offer health insurance coverage to their employees for the first time or maintain coverage they already have

The new guidance addresses small business questions about which firms qualify for the credit by clarifying that a broad range of employers meet the eligibility requirements, including religious institutions that provide coverage through denominational organizations, small employers that cover their workers through insured multi-employer health and welfare plans, and employers that subsidize their employees’ health care costs through a broad range of contribution arrangements.

In general, the credit is available to small employers that pay at least half of the premiums for single health insurance coverage for their employees. It is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.

Small businesses can claim the credit for 2010 through 2013 and for any two years after that. For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small businesses and 25 percent of premiums paid by eligible tax-exempt organizations. Beginning in 2014, the maximum tax credit will increase to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible tax-exempt organizations.

The maximum credit goes to smaller employers – those with 10 or fewer full-time equivalent (FTE) employees – paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 or more FTEs or that pay average wages of $50,000 or more per year.

Important note: Because the eligibility rules are based in part on the number of FTEs, not the number of employees, employers that use part-time workers may qualify even if they employ more than 25 individuals.

How to Claim the Tax Credit

  • If your business is eligible, use Form 8941 to figure the credit and then include the amount of the credit as part of the general business credit on your tax return.
  • Tax-exempt organizations must use Form 8941 to figure their refundable credit, and then claim the credit on Line 44f of Form 990-T. Though primarily filed by those organizations liable for the tax on unrelated business income, Form 990-T (draft) will also be used by any eligible tax-exempt organization to claim the credit, regardless of whether they are subject to this tax.

Links to Additional information:
Frequently Asked Questions
Affordable Care Act
IRS Notice 2010-82
Form 8941
Instructions to Form 8941
Form 990-T – Draft of 2010 Form
IRS Press Release

Contributed By:

The PCS Team

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney, CPA or HR Professional

Tax Credits Provide Relief for U.S. Businesses

Sunday, October 31st, 2010

TaxBreak Tax CreditsBy:   Shannon Scott, President, TaxBreak-National Tax Credit

Most of you have heard the term “tax credit”, but did you know it can decrease your tax burden and put more cash back into your business?  Each year large and small companies forfeit millions of dollars because they do not take advantage of the tax credits available to qualifying employers. Many of these credits go unclaimed due to the complexity and time-consuming factors that impact the process.  There are many types of tax credits available to your company on the Federal, State and local level.  For the restaurant industry, the federal hiring credits such as the Work Opportunity Tax Credit (WOTC), Empowerment Zone (EZ) and Renewal Community (RC) credits can result in huge dividends.  These credits are available by simply doing what you do every day; hiring employees.

These tax credits can provide up to $9,000 per employee in Federal Income Tax Credits based on the category for which the employee qualifies.  These credits can be taken in the year earned, carried back one year or carried forward 20 years.  The WOTC rewards employers hiring individuals who are members of targeted economic groups while the EZ and RC are zone based credits.  To qualify for a zone credit, an employee simply has to live and work in one of the 81 designated zones in the United States.  Most companies believe they are taking advantage of this program through their regular tax deductions; however, that is simply not the case.  If your new hires are not completing and signing an IRS Form 8850 upon hire, you are not processing these tax credits.

These programs, although very beneficial, can be almost impossible to administer in house.  Processing and qualifying these credits takes a very good understanding of how tax incentives are applicable to a particular industry, location or employee base.  In some cases, extensive background and address history research must take place in order to verify these credits.  Tax credit processing companies throughout the United States assist you in identifying these credits and calculating the amount for which an employee qualifies.  Most of these companies work on a contingency fee basis, so there is no financial risk to your company and the fees are tax deductible.

Taking a proactive approach in identifying these credits can significantly increase your tax credit yield.   The application process will help you screen your new hires and identify their tax credit potential.  After all, this program was put in place to encourage you to hire these employees.

Recent tax law changes have increased the use of these credits to businesses who could previously not take advantage of the incentives along with extending the program itself.  The WOTC credit was extended for 3.5 years with liberalized rules for hiring disabled veterans and workers in “outward migration counties.”  Under the pre-2007 Small Business Act law, most general business credits, such as WOTC, could not offset a taxpayer’s Alternative Minimum Tax (AMT) liability.  With the enactment of the 2007 Small Business Act, this changed for credits earned after January 1, 2007.  The WOTC credits earned after January 1, 2007 offset AMT.  A taxpayer is subject to AMT whenever their tentative minimum tax exceeds their regular tax.

There are many good resources available for learning more about the types of credits and how these credits can help reduce your tax burden.  Information can be found on most search engines along with the IRS Website (www.irs.gov).  Tax time is fast approaching and it is not too late to help reduce your 2010 tax liability.

For more information:

Call George Shamblin gshamblin@taxbreakllc.com or Todd Griffin email tgriffin@taxbreakllc.com

866-499-6355
www.taxbreakllc.com

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney, CPA or HR Professional.

The Tax Man Cometh

Monday, August 30th, 2010

Tax CreditsSubmitted By Shannon Scott

Most of you have heard the term “tax credit”, but did you know how it can decrease your tax burden and put more cash back into your business? Each year large and small companies forfeit millions of dollars because they do not take advantage of the tax credits available to qualifying employers. Many of these credits go unclaimed due to the complexity and time consuming factors that impact the process. There are many types of tax credits available to your company on the Federal, State and local level. For the staffing industry, the federal hiring credits such as the Work Opportunity Tax Credit (WOTC), HIRE Act credits and FICA Tip Tax Credit can result in huge dividends. These credits are available by simply doing what you do every day; hiring and placing employees.

These tax credits can provide up to $9,000 per employee in Federal Income Tax Credits based on the category for which the employee qualifies. These credits can be taken in the year earned, carried back one year or carried forward 20 years.  They can be demographic or geographic in nature.

Most companies believe they are taking advantage of this program through their regular tax deductions, however, that is simply not the case.  If your new hires are not completing and signing an IRS Form 8850 upon hire, you are not processing these tax credits.

This program, although very beneficial, can be almost impossible to administer in house. Processing and qualifying these credits takes a very good understanding of how tax incentives are applicable to a particular industry, location or employee base. In some cases, extensive background and address history research must take place in order to verify these credits.  Tax credit processing companies throughout the United States assist you in identifying these credits and calculating the amount for which an employee qualifies. Most of these companies work on a contingency fee basis, so there is no financial risk to your company and the fees are tax deductible.

Taking a proactive approach in identifying these credits can significantly increase your tax credit yield.  The application process will help you screen your new hires and identify their tax credit potential. After all, this program was put in place to encourage you to hire these employees.

Recent tax law changes have increased the use of these credits to businesses who could previously not take advantage of the incentives along with extending the program itself. The WOTC credit was extended for 3.5 years with liberalized rules for hiring disabled veterans and workers in “outward migration counties.” Under the pre-2007 Small Business Act law, most general business credits, such as the work opportunity tax, could not offset a taxpayer’s Alternative Minimum Tax (AMT) liability. With the enactment of the 2007 Small Business Act, this changed for credits earned after January 1, 2007.  The WOTC credits earned after January 1, 2007, will now offset AMT. A taxpayer is subject to AMT whenever their tentative minimum tax exceeds their regular tax.

There are many good resources available for learning more about the types of credits and how these credits can help reduce your tax burden. Information can be found on most search engines along with the IRS Website (www.irs.gov).  Tax time is fast approaching and it is not too late to help reduce your 2007 tax liability.

-Shannon Scott is the CEO & President of TaxBreak

Please contact George Shamblin at gshamblin@taxbreakllc.com for questions about the tax credit program available through PCS via TaxBreak.

George Shamblin
Corporate Account Executive
TaxBreak
2010 Club Drive, Ste. 100
Gadsden, AL 35901
205.305.7968 Cell
256.549.7554 Fax
www.nationaltaxcredit.com

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney or an HR Professional.

U.S. Treasury Reports on HIRE Act

Tuesday, July 27th, 2010

HIRE UpdateThe U.S. Department of the Treasury today released a new report showing that, from February 2010 to May 2010, businesses have hired an estimated 4.5 million new workers who had been unemployed for eight weeks or longer, making those businesses eligible to receive up to a projected $8.5 billion in HIRE Act tax exemptions and credits for hiring the unemployed.

Alan B. Krueger, Assistant Secretary for Economic Policy and Chief Economist at the Treasury Department, announced the release of the report in Sanford, North Carolina with Congressman Bob Etheridge (NC-2) and Andy Warlick, President and CEO of Parkdale Mills, a yarn manufacturer that recently reopened a plant in Sanford and has already hired more than 30 workers who are eligible for HIRE Act tax exemptions, a number that will likely grow as they continue to add more workers.

“Helping unemployed Americans get back to work – particularly the long-term unemployed - is essential to ensuring a strong economic recovery,” said Assistant Secretary Krueger. ”Targeted, temporary incentives like the HIRE Act are helping to fuel a private-sector-led recovery.  After a period of extraordinary difficulty, the economy is continuing to grow and private sector companies have added jobs for six straight months.”

The Hiring Incentives to Restore Employment (HIRE) Act of 2010 provides employers an incentive to hire workers who have been unemployed for 60 days or longer by exempting wages paid to these workers from the employer’s 6.2 percent share of Social Security payroll taxes for the remainder of the year.  In addition to exempting employers from these payroll taxes, the HIRE Act allows employers to claim a tax credit of up to $1,000 for each newly hired qualifying worker who is retained for one year.  An employer is eligible to receive almost $3,500 in tax savings from hiring an unemployed worker who is paid $40,000 in salary this year. 

“This new tax credit provided a powerful incentive to grow our business and was a major factor in our decision to re-open the plant in Sanford,” said Andy Warlick, President and CEO of Parkdale Mills.  “It’s an example of tax policy that’s done the right way – that’s not about off-shoring but about re-shoring, and it’s helping us create jobs here.” 

Using monthly data from the Current Population Survey, Treasury estimated that, from February 2010 to May 2010, 4.5 million workers who had been unemployed for eight weeks or longer were hired by employers who are eligible for the HIRE Act payroll tax exemption.  If these 4.5 million newly hired employees remain employed for the rest of the year, their employers would be eligible for an estimated $5.1 billion in payroll tax savings as a result of the Act.  Furthermore, if three-quarters of the workers remain employed for 52 weeks, then their employers would receive another $3.4 billion in tax credits for these hires.

Treasury’s report includes employment data through May 2010. The HIRE Act tax exemption is still available for the remainder of 2010 to employers who hire unemployed workers.  Treasury’s Office of Economic Policy will estimate the number of newly hired workers whose employers qualify for the HIRE Act tax exemption and update this report monthly for the rest of the year.

To follow the PCS updates on HIRE Act, click here.

Health Care Credit Update

Wednesday, May 26th, 2010

Health CareThe new health care reform laws have differing impacts and timelines for employers depending upon the size of the business and the types of benefit plans they have put into place to provide health related insurances.  Since there is interaction between the HIRE Act and health care reform that presents both opportunities and pitfalls, we highly recommend that businesses consult with their CPA, insurance broker and other trusted advisers to determine the proper course of action specific to their business.

SHORT TERM OVERVIEW OF THE IMPACT ON BUSINESSES

  • 2010-2013: Small businesses (fewer than ) providing health care coverage for employees may be eligible to claim a credit equal to 35% of the contributions they make on behalf of their employees for insurance premiums.  There are rules and limitations which are outlined in the recap of IRS Notice 2010-44 below.
  • 2011: Employers must report the value of health insurance plans on W-2 forms and all employer-sponsored plans will be required to have the following amendments: (1) Eliminate lifetime and annual limits on benefits, (2) Provide first-dollar coverage for preventative care, (3) Extend eligibility for dependent coverage to employees’ unmarried children through age 26.
  • 2013: A $2,500 limitation on contributions to health FSAs and FSAs, HSAs or MSAs can no longer be used for over the counter drugs.  Penalties for using these accounts for disallowed purchases will increase from 10 to 20% on HSAs and from 15 to 20% for MSAs.

There are many other phase-in reforms that occur in the following years.  Due to the volatility of this reform, we recommend that you follow the progress at the IRS website and seek counsel from your trusted advisers in order to plan effectively.

IRS OFFERS DETAILS ON HEALTH CARE TAX CREDIT

On May 17th, 2010 the IRS issued new guidance to make it easier for small businesses to determine whether they are eligible for the new health care credit.  Notice 2010-44 provides the following information:

  1. Purpose and Background: Brief overview of the reasons for the credit.
  2. Employers Eligible for the Credit: Overview of the requirements and details on the five steps employers must take to determine eligibility.
  3. Calculating the Credit: Details on the three steps that determine the credit amount.
  4. Claiming the Credit and Effect on Estimated Tax, AMT and Deductions
  5. Transition Relief for Taxable Years Beginning in 2010
  6. Effective Date

The notice is twenty pages long and offers quite a few examples to assist the employer with making the proper determinations.  Again, we recommend that business owners consult with their CPA and other trusted advisers to ensure they are taking full advantage of the general business credit being offered.

NON PROFIT EMPLOYERS

Organizations described in section 501c that are exempt from tax under section 501a may be eligible for the credit.  Since these employers are exempt from paying corporate / business tax, there is some confusion as to how they will be able to claim and receive the credit.  In Notice 2010-44 section 45R states that, “For a tax-exempt eligible small employer, the IRS will provide further information on how to claim the credit.”  General consensus among the many advisers PCS has polled is that the credit will either be taken on the 941 payroll tax filing or may be issued in the form of a grant.  At this time, all thoughts are pure conjecture and we are awaiting final direction from the IRS.

Since eligible small employers that are not tax-exempt will be taking the credit on the business tax returns, there are not any ramifications on payroll tax reporting at this time.  However, it’s important to note the need for reporting the value of the employees health insurance on the W-2’s beginning in tax year 2011.

HELPFUL LINKS

NOTICE 2010-44

Answers to Frequently Asked Questions

IRS Announcement Offering Details on Health Care Credit

First PCS Article on Health Care Reform

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney or an HR Professional.

Hire Act Update

Sunday, April 25th, 2010

 

Hire Act UpdateWe have received numerous updates from the IRS since the March Issue of PayNotes and continue to monitor the IRS website on a daily basis.  Included in the updates are:

  1. FAQ from IRS on HIRE
  2. New Form W-11 which is the Affidavit that employers must have the employees complete in order to comply with the regulations of the Act.
  3. The language of the Act itself.

We have been keeping our original article on HIRE updated with these new releases including the Wizard which can help you identify if any new hires qualify your company for the exemption.  To access the article, click here.

For our Clients, there are a number of steps that need to be taken in order to ensure the employer Social Security Tax exemption is computed and reported correctly.  PCS’s software is now updated to allow for the recording of HIRE Act events.  If you have a qualified new hire to setup, here is what you need to do:

  1. Be sure to have the employee fill out and sign the Affidavit (W-11 ). Retain these records and do not send them to PCS.
  2. Notify your Client Account Manager via email or phone that you have an employee to apply the credit code to. Your Client Account Manager will make the appropriate notations and will take care of the employee coding for you at this time.

Again, we will be keeping this page up to date as new information is available, be sure to check back on a regular basis or contact your Client Account Manager for any assistance!

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney or an HR Professional.