Payroll Tax Credits

Payroll expense is usually one of the largest expenses for just about any business, and with the economic downturn of the past two years, it is even more important than ever to make sure that your business is receiving all the tax credits possible to relieve the burden of these expenses.

However, after all the employer tax credits available, still very few small business owners are taking advantage of these credits or even know of their existence. You may be asking yourself, “How can this really help me?” The answer is simple, money talks! One employer tax credit can range from between $1,200-$5,000 per employee, and the chances are very good that you already employ one person that falls into the qualification for the credits. There are a few reasons for the lack of collection on these moneys due.

1. Unaware Owners: most small business owners rely on the expertise of their accountant or payroll provider to inform them of any tax credits available.

2. Payroll Processors, just process: Just like in their title, most payroll processing companies due as promised which is the data entry and processing of their customer’s payroll.

3. Out-of-date or lazy accountants: Unfortunately, many business owners either wait until the end of the year to even speak with their accountant, or are working with accountants that do not see the value in making sure to implement every possible tax benefit their client qualifies for.

Nevertheless, it is still the owner’s responsibility to make sure that they are allocating their resources properly to generate the highest profit possible. So here is what you have been missing and what is new in employer tax credits. Here are the guidelines according to the United States Department of Labor.

The Work Opportunity Tax Credit (WOTC) is a Federal tax credit incentive that the Congress provides to private-sector businesses for hiring individuals from twelve target groups who have consistently faced significant barriers to employment. The main objective of this program is to enable the targeted employees to gradually move from economic dependency into self-sufficiency as they earn a steady income and become contributing taxpayers, while the participating employers are compensated by being able to reduce their federal income tax liability. WOTC joins other workforce programs that help incentivize workplace diversity and facilitate access to good jobs for American workers.

WHAT NEW HIRES CAN QUALIFY EMPLOYERS FOR THE WOTC?

• The consolidated WOTC applies only to new employees who began to work for an employer after December 31, 2006 and before September 1, 2011.
• The new employee must belong to one of the following 12 WOTC target groups:
• Long-term TANF Recipient. A member of a family that:
• Received or recently received Temporary Assistance to Needy Families (TANF) payments for at least 18 consecutive months ending on the hiring date, or
• Received TANF payments for any 18 months (whether or not consecutive) beginning after August 5, 1997, and the earliest 18-month period beginning after August 5, 1997 ended during the past 2 years, or
• Stopped being eligible for TANF payments during the past 2 years because federal or state law limited the maximum time those payments could be made.
• Other TANF Recipient. A member of a family that is receiving or recently received TANF benefits for any 9-month period during the 18-month period ending on the hiring date;
• Qualified Food Stamp Recipient. An 18-39 year old member of a family that received Food Stamps for the past 6 months, or received Food Stamps for at least 3 of the past 5 months;
• Designated Community Resident. An 18-39 year old resident of one of the federally designated Empowerment Zones (EZs), Enterprise Communities (ECs), Renewal Communities (RCs), and for individuals who begin to work for an employer after May 25, 2007, this High-Risk Youth group has been renamed “Designated Community Resident” and expanded to include residents of Rural Renewal Counties;
  Note: All Round I Enterprise Communities (ECs) including enhanced Enterprise Communities expired on December 31, 2004. Round II ECs are still in existence as are all the EZs;
• Summer Youth Employee. A 16-17 year old EZ/EC or RC resident hired between May 1 and September 15;
  Note: All Round I Enterprise Communities (ECs) including enhanced Enterprise Communities expired on December 31, 2004. Round II ECs are still in existence as are all the EZs;
• Qualified Veteran. A veteran who is a member of a family that is receiving or recently received Food Stamps for at least a 3-month period during the past 15 months; and for individuals who begin to work for an employer after May 25, 2007, the veteran group is expanded to include “disabled veterans” who are entitled to compensation for a service-connected disability and who, during the one-year ending on the hiring date, were: a) discharged or released from active duty in the U.S. Armed Forces, or be) unemployed for a period or periods totaling at least 6 months. The first-year wages taken into account for these “disabled veterans” are capped at $12,000;
• Vocational Rehabilitation Referral. An individual who completed or is completing rehabilitative services from a State certified agency, an Employment Network, or the U.S. Department of Veterans Affairs;
• Qualified Ex-Felon. An individual who has been convicted of a felony and has a hiring date which is not more than one year after the last date on which he was so convicted or released from prison;
• SSI Recipient. A recipient of Supplemental Security Income (SSI) benefits for any month ending during the past 60 day period ending on the hire date.
• Hurricane Katrina Employee. This group does not require certification by the SWAs.
• Unemployed Veteran. A veteran hired after 2008 and before 2011 who:
• Has been discharged or released from active duty in the U.S. Armed Forces at any time during the 5-year period ending on the hiring date, and
• Received unemployment compensation under state or federal law for at least 4 weeks during the 1-year period ending on the hiring date.

To be considered a veteran, the applicant must have served on active duty (not including training) in the Armed Forces of the United States for more than 180 days or have been discharged or released from active duty for a service-connected disability.

• Disconnected Youth. An individual who is certified as: 1) having attained age 16 but not age 25 on the hiring date, 2) not regularly attending any secondary, technical, or post-secondary school during the 6-month period preceding the hiring date, 3) not regularly employed during such 6-month period, and 4) not readily employable by reason of lacking a sufficient number of basic skills.

The consolidated WOTC for hiring most target group members can now be as much as:

§ $2,400 for each new adult hire;

§ $1,200 for each new summer youth hire,

§ $4,800 for each new disabled veteran hire, and

§ $9,000 for each new long-term family assistance recipient hired over a two-year period.

Minimum employment or retention period

All new adult employees must work a minimum of 120 or 400 hours. Individuals hired as Summer Youth employees must work at least 90 days, between May 1 and September 15, before an employer is eligible to claim the tax credit. The WOTC amount an employer may claim depends on the hours the employee works. The credit is 25% of qualified first-year wages for those employed at least 120 hours but fewer than 400 hours and 40% for those employed 400 hours or more.

It is because of the strict guidelines, and the timeliness of the information submission after an employee has been hired, that has lead to most of these credits falling by the wayside. Fortunately, there are CPA firms,(www.buschcpa.com), that specialize in recovering these credits through a screening process of “new hire” employees. So that you are not bogged down my excess paperwork and so that they are providing you with the service they promised, to provide you with all tax credits applicable to your business.

My first blog: A little about me

My name is Cathy Glenn, and I have spent my life surrounded by small business owners. This is because Raymond J. Busch Ltd. CPA (www.buschcpa.com) is my father, and while I was young the accounting firm was a home based business. Clients would come by daily to pick up and drop off their bookkeeping and tax work. Like most family businesses, at a very young age I started “working” for the business. It began by getting coffee, copies, and answering the phones. My passion for the company, and our clients began then, and grew stronger as the years went on. Raymond J. Busch, Ltd., has grown quite a bit since those years and has been servicing the accounting needs of the small business for over 36 years, and still retains the business of its first few clients in its’ 3,200 square foot office in Tinley Park. Once I finished school and began to work full time for the company, I started as the Marketing Director. I was only 22 years old and had no prior sales experience, but what I did have was a passion for our product and services. It was an interesting road at first, many doors closed in my face and failures. However, I finally realized what people needed was help, not a presentation. When I stopped talking and started listening I was surprised to learn of the poor services out there. I learned that my job was not to sell, but to inform people that there were real solutions for their accounting and tax needs which are affordable and easy. After six years of client relations, I was prompted to write an, easy- to- understand small business accounting guide. It’s a way for me to educate more local owners on the basics of financially managing their business and growing profits, as well as doing what I love!