Every year, thousands ofemployers fail to claim their fairshare of the billions of dollars ingovernment tax credits and incentive programs set aside for them. If you’venever claimed yours, then the question is: “Why?”
Maybe you just didn’t know aboutthese federal and state programs designedto encourage employers to hire membersof specific, usually disadvantaged, groups.Just to give you an idea of what you maybe leaving on the table, a recent study estimates a new health care industry workerwho qualifies for one of the federal taxcredit programs nets an average of $2,744 in total credits for the employer. And thiskind of credit is the best kind of tax benefitbecause it reduces taxes dollar-for-dollar.
It’s astounding then that only 1% of alleligible U.S. employers takes advantage ofthese programs. This means the other 99%either don’t know about the programs atall or they:
• Believe there would not be a significant return-on-investment.
• Do not have payroll, human resourcesand tax departments equipped to deal withthe rules, regulations and paperwork.
• Are not willing to adopt new employment screening techniques, revisedemployee personnel information forms or meet requirements to complete and filethe required forms within strict deadlines.
These three objections are overruled,however, by the fact that the entire processcan be outsourced with little or no upfrontcost. A reputable employment tax creditcompany can administer every aspect:service initiation, applicant screening, documentation, interaction with governmentagencies and comprehensive reporting.These outsourcing companies work withCPAs and payroll service providers andusually charge on a contingency basis; i.e.,they only receive a portion of the moneyearned through the tax credits generatedby your hiring process.
Know what’s available
The Federal tax credit programs mostlikely to apply when you hire eligibleemployees are:
• Work Opportunity Tax Credit(WOTC)
• Welfare-to-Work Tax Credit (WTW)
• Empowerment Zone EmploymentCredit (EZEC)
• Renewal Community EmploymentCredit (RCEC)
• Indian Employment Credit (IEC)
The recently revised WOTC Programallows your company to receive a taxcredit of up to 40% of the first $6,000 inwages paid to an employee who is aqualified member of one or more of thefollowing nine targeted groups:
• Certain families eligible to receivebenefits under the Temporary Assistancefor Needy Families Program
• High risk youths
• Vocational rehabilitation referrals
• Summer youth employees
• Member of a family receiving foodstamp benefits
• Person receiving certain SupplementalSecurity Income (SSI) benefits
• Hurricane Katrina employee (expiredAug. 28)
• Welfare-to-work credit/long-termfamily assistance recipients (This is anaddition under the new act and provides for a $10,000 cap for both qualifiedfirst-year wages and qualified secondyear wages.)
The new act repeals the requirementthat a qualified ex-felon be a member of aneconomically disadvantaged family. Thenew provisions also raised the age limitfor the food stamp recipient to includeindividuals aged 18 but less than 40 on thedate of hire and extended the submissiondate for screening and certification documents from 21 to 28 days.
WOTC is designed to encourageemployers to hire individuals with traditionally high unemployment rates. Toqualify, the employee must be a new hire,be within the targeted group outlinedabove, meet the stringent certificationrequirements and work a minimum of 120hours. The credit is 25% if the employeecompletes less than 400 hours, but morethan 120 hours and increases to 40% if theemployee works at least 400 hours. The maximum credit is $2,400 (40% of the first$6,000) per eligible employee.
With respect to qualified summeryouth employees, the maximum credit is$1,200 (40% of the first $3,000).
The certification rules are exacting. Anindividual is not treated as a member of atargeted group unless:
• On or before the day on which anindividual begins work for an employer,the employer has received a certification from a designated state agency thatsuch individual is a member of a targetedgroup; or,
• On or before the day an individual isoffered employment with an employer, aprescreening notice is completed by theemployer with respect to such individual,and not later than the 28th day after theindividual begins work, the employer submits the notice, signed by the employeeunder penalties of perjury, to the designated state agency as part of a writtenrequest for certification. The state agencywill either certify or deny the request forcertification; if denied the agency will provide a written explanation.
The Welfare-to-Work (WTW) credit is40% of the first $10,000 of qualified wagesin the first year of employment and 50%of the first $10,000 of qualified wagesin the second year of employment. Themaximum credit per eligible employeetherefore is $9,000. Like the provisions ofthe WOTC, the WTW tax credit followsthe same certification rules and Federalform 8850 must be sent to the IRS within28 days of the start of work.
The Federal Government has designated approximately 80 distressedcommunities around the country aseither Empowerment Zones (EZ) orRenewal Communities (RC). Employersare eligible for up to $1,500 credit forqualified employees in an EZ and up to $3,000 in an RC. This credit is for eachyear that the employee meets the qualifications and the credit is available untilDec. 31, 2009. Generally, to qualify, theemployee must reside in the EZ or RC and perform substantially all his work forthe employer within that EZ or RC. Inaddition to employment credits, theEZ and RC programs also provide forincreased deductions for qualifyingproperty, capital gains exclusions, and other benefits.
The Native American IndianEmployment Credit program providesbusinesses with tax credits to hire andretain individuals who are enrolled members of an Indian tribe (or the spouse of anenrolled member) and who performs substantially all the work for the employerwithin the reservation and lives in ornear a reservation. The maximum creditis $4000 or 20% of the employer’s costsfor a qualified employee’s wages andhealth insurance that exceed the amountpaid or incurred to the employee for suchcosts during 1993. Employees whose totalqualified wages and health insuranceexceed $40,000 per year are not qualifiedemployees.
In addition to the federal employmenttax credits, most states offer additionalincentives. Alabama has eleven incentiveprograms, some of which may be applicable to your business. Mississippi offersat least nineteen programs and Louisianatops the list at over 40 programs.
Take some time to research the companies that specialize in tax creditprocessing and make sure you’re not leaving any money on the table that could be yours.
|CertiFied Speaking professional Mel Kleimanis an internationallyrecognized consultant,author and speaker/trainer on strategiesfor finding and keeping the best hourlyemployees. He is thepresident of Humetrics,a leading developer of systems, training processes, and tools forrecruiting, selecting and retaining the besthourly workforce. Kleiman is the author of fivebooks, including the best-selling “Hire tough,Manage easy.” For more information, visit www.kleimanhr.com or call (713) 771-4401.|