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The WOTC Planet Requests Your Feedback Regarding HIRE Act and IRS Disclosure of Transactions with Contractual Protection

Wednesday, September 5th, 2012

This is a request for reader feedback on an issue related to the HIRE Act worker retention tax credit that many employers are claiming with their 2011 federal income tax returns.

Question: Has anyone filed IRS Form 8886 “Reportable Transaction Disclosure Statement” (or had any related experience) in connection with service fees for the HIRE Act new hire retention tax credit program?

 

Some Background:  Per the instruction to IRS Form 8886, some tax transactions that involve the payment of a contingency fee (aka “contractual protection”) must be disclosed to the IRS. In non-technical terms, this is when someone claims a federal income tax benefit for which they also pay a service fee that is based on the amount of the tax benefit.

This kind of service fee, however, is very common when it comes to employment-based tax credit programs like the Work Opportunity Tax Credit, Empowerment Zone Employment Credit, the Indian Employment Tax Credit, and others. Employers usually require help with these programs and prefer to pay for that help based on the level of results achieved by their service provider.

Recognizing this, the IRS has specifically exempted WOTC, Empowerment Zones and six other programs from the disclosure requirement. See IRS Rev Proc 2007-20 (http://www.irs.gov/irb/2007-07_IRB/ar15.html).

The HIRE Act new hire retention tax credit is very similar in principle and procedure to the excluded programs.  However, it was a one-time program only affecting employees hired in 2010. To date, we have not found an updated IRS statement excluding it from the reporting requirement.

If you have come across information about this issue, we would like to hear from you.

 

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(Federal) Job Creation Tax Credit Act

Thursday, July 28th, 2011

Photo of Senator Sheldon Whitehouse from His Senate Website

If you haven’t already heard, US Senator Sheldon Whitehouse (Democrat of Rhode Island) introduce the Job Creation Tax Credit Act in June.  The bill would expand on the HIRE Act of 2010, providing tax incentives for the hiring of unemployed individuals.

Quoting the Senator from his website:

For each qualified hire made in 2011, the business would receive a tax credit equal to 15% of the wages paid to the new employee. If the new employee remains employed, or if the business hires additional employees in 2012, it would be eligible for a 10% tax credit equal to those employees’ wages next year.

Furthermore,

The tax credits would be refundable, meaning that businesses would benefit from them even if they are not currently profitable. The higher credit in 2011 would encourage employers to hire new workers as soon as possible, and the additional credit in 2012 would encourage employee retention and additional workforce expansion.

 A new hire qualifies in the same way one did under the 2010 HIRE Act — being unemployed for the 60 days prior to hire.

 According to the congressional legislation tracking website, as of today (July 28, 2011) there has been no additional action on this bill since it was introduced and referred to committee on June 23rd.

Posted in Federal Legislation | No Responses »
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IRS Information About HIRE Act Payroll Tax Exemption

Friday, December 31st, 2010

If your company participated in the HIRE Act’s 2010 payroll tax exemption there is important IRS information you need to know.  Without becoming anyone’s tax advisor (I’m not), let me point out a thing or two from the IRS website. I strongly recommend that you go there yourself (and make sure your payroll services provider is fully informed!). 

The first link is here:  IRS FAQs About Claiming the Payroll Tax Exemption

A more general link is this: HIRE Act – Questions and Answers for Employers

First, something that has not been obvious to everyone.  Compensation and tips subject to the payroll tax exemption must be reported on IRS Form W-2.  I mention this requirement explicitly because it might affect your timing during the busy month of January.  

For example, one large employer I work with processes their own payroll and W-2s in house.  Their VP of Accounting informed me last week that they will be custom-programming their payroll system to handle this new requirement.  Software programming, of course, requires time and it is a project that stands in the critical path of issuing timely W-2s to all their employees.

Here’s the IRS language from the IRS website

FAQ: Will employers have to indicate on the Form W-2 the qualified employees whose wages are exempt from the employers share of social security tax and/or separately report wages exempt from the employers share of social security tax?

IRS Answer A-PE24: Yes, new Code CC has been created for box 12 of Form W-2 for employers to identify qualified employees and report the amount of wages and tips covered by the payroll tax exemption. In addition, new box 12b has been created on Form W-3 to report the aggregate of Code CC.

Here’s another real dandy.  I bet you didn’t know this. 

FAQ: PE7: Is the payroll tax exemption based on when wages are earned by a qualified employee or when they are paid to a qualified employee?

IRS Answer A-PE7: The exemption is based on when wages are paid. Thus, only wages paid from March 19, 2010, through December 31, 2010, qualify for the exemption (regardless of when those wages are earned).

Go, check out the IRS website (links above).  And send your payroll provider a copy of this post. 

Happy New Year!

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Fight Is Over For Now – Missing Tax Incentives To Stay Missing

Thursday, December 16th, 2010

The US House is schedule to vote on the tax bill today. The House Rules Committee, however, is allowing a vote on only one proposed amendment – an amendment to increase the estate tax. The rule allows no other motions or amendments on the bill.

While we hoped for an extension of the HIRE Act payroll tax exemption, that program will end for new hires (as it was originally scheduled) on December 31. Do not forget, however, that the HIRE Act’s worker-retention tax credit remains in play — many employees who qualified for the payroll tax exemption in 2010 will generate an additional income tax credit for their employer in 2011 after working for 52 weeks.

Some employers who participate in the Work Opportunity Tax Credit (WOTC) program will experience a small decrease in qualifications in 2011 as the Disconnected Youth and Unemployed Veteran target groups also expire. We are consoled, however, by the fact that the WOTC program itself has been renewed through 2011.

So, far now — for now — the fight is temporarily over. In 2011, we will be working with the new Congress to renew and extend as many of these provisions as feasible.  If you’re interested in joining the WOTC Coalition and playing some role in the effort, contact Paul Suplizio, President of the WOTC Coalition.  Visit the Coalition’s website at www.WOTCCoalition.com.

Posted in Federal Legislation | 10 Responses »
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U.S. Senate Passes Tax Bill – Eyes Turn to House to Please Add Back Missing Tax Incentives!

Wednesday, December 15th, 2010

The Senate today passed the much anticipated tax bill without renewing the HIRE Act Payroll Tax Exemption, federal Renewal Communities, or the WOTC provisions for disconnected youth, unemployed veterans, or Gulf Opportunity Zone employers.  This is a disappointment, but not unexpected. 

Now that HR 4853 has been passed to the U.S. House of Representatives, eyes turn to susceptible House members seeking an amendment to add these provisions.  If these incentives are important to you, please consider contacting House Members from your jurisdictions and urge them to support including these 5 provisions with any amendments to the tax bill.  Make a special effort to contact Ways and Means Chairman Sander Levin.

Paul Suplizio, President of the WOTC Coalition, pointed out today that these 5 programs are “current-law job creation incentives” — so we are not urging the creation of any new program.  In summary, what we seek:

  1. Extension of the HIRE tax credits
  2. Extension of the Renewal Community program
  3. Extension of WOTC for disconnected youth
  4. Extension of WOTC for unemployed Iraq-Afghanistan era veterans
  5. Extension of WOTC for Gulf Opportunity Zone employers

On the bright side, the bill passed by the Senate does include reauthorization of:

  • The WOTC Program through 2011
  • The Research and Development Tax Credit
  • The Indian Employment Credit
  • The Empowerment Zone Program
  • The District of Columbia Enterprise Zone

See my previous post on this.

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Asking the US House to Include Key Tax Incentives in House Amendment

Monday, December 13th, 2010

As noted in my most recent post, some key employment incentives were left out of the Senate version of the tax bill being discussed in Washington D.C.  I received a correspondence today from Paul Suplizio, President of the WOTC Coalition, detailing current efforts to include the missing programs in the House version of the bill.

Specifically, the WOTC Coalition is urging that the following be included in the House bill if the opportunity for amendment materializes.

  • Reauthorization of the HIRE Act’s Payroll Tax Exemption for Employers
  • Reauthorization of Renewal Communities
  • Continuation of Disconnected Youth as a WOTC targeted group
  • Continuation the Unemployed Veterans as WOTC targeted group
  • Continuation of WOTC for Gulf Opportunity Zone employers

Efforts at persuasion are focused on Representative Sander Levin, Chairman of the House Committee on Ways and Means and Senator Max Baucus, Chairman of the Senate Committee on Finance. 

Representative Charles B. Rangel, a known expert and champion of the WOTC program within the House of Representatives has also been contacted with the hope that he will use his expertise to help persuade the Chairman to include these items in any amendment to the bill.

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Renewal of Key Tax Incentives Still Up In the Air

Thursday, December 9th, 2010

As reported by Jamie Dupree Washington Insider, Senate Majority Leader Harry Read’s office has released a summary of elements included in the Senate’s version of the tax compromise between President Obama and Congressional Republicans.  The list is long and may include other provision of interest to you.  For my purposes, however, this post focuses on employment-based tax incentives (and the much prized R&D credit).

The bad news (or maybe the good news, depending on your perspective and ability to read the future) is the House Democratic leadership seems to be digging in their heels against bringing a House version of the bill to the floor for a vote. 

I read through the Senate bill’s summary twice and bring you the follow excerpts:

R&D credit. The bill reinstates for two years (through 2011) the research credit.

Indian employment credit. The bill extends for two years (through 2011) the business tax credit for employers of qualified employees that work and live on or near an Indian reservation. The amount of the credit is 20 percent of the excess of wages and health insurance costs paid to qualified employees (up to $20,000 per employee) in the current year over the amount paid in 1993.

Empowerment Zones. The bill extends for two years (through 2011) the designation of certain economically depressed census tracts as Empowerment Zones. Businesses and individual residents within Empowerment Zones are eligible for special tax incentives.

District of Columbia Enterprise Zone. The bill extends for two years (through 2011) the designation of certain economically depressed census tracts within the District of Columbia as the District of Columbia Enterprise Zone. Businesses and individual residents within this enterprise zone are eligible for special tax incentives. The bill also extends for two years (through 2011) the $5,000 first-time homebuyer credit for the District of Columbia.

Work opportunity tax credit (WOTC). Under current law, businesses are allowed to claim a work opportunity tax credit equal to 40 percent of the first $6,000 of wages paid to new hires of one of nine targeted groups. These groups include members of families receiving benefits under the Temporary Assistance to Needy Families (TANF) program, qualified veterans, designated community residents, and others. The WOTC program is currently set to expire August 31, 2011. The bill extends this provision through December 31, 2011 and would be effective for employees hired after date of enactment.

Noticeably missing from the summary are extensions for a number of WOTC program target groups.  Current WOTC provisions provide for at least 12 targeted groups (A through K plus Hurrican Katrina employees), not merely the 9 mentioned in the summary. Specifically, missing from the summary are Hurricane Katrina Victims, Disconnected Youth, and Unemployed Veterans.  HOWEVER, I have not read the actual text of the bill.  These specific issues might be addressed there. 

Also, I see no mention of extending the HIRE Act’s employer payroll tax exemption into 2011.  I do, however, see a new Payroll Tax Holiday provision, which provides an automatic 2% reduction of the employee portion of the social security tax for all employees and self-employed individuals.

Keeping our fingers crossed . . ..

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Future of The HIRE Act’s Payroll Tax Exemption Benefit

Wednesday, November 24th, 2010

While many U.S. employers have taken advantage of the 2010 federal HIRE Act’s Payroll Tax Exemption benefit, many more have not.  As it currently stands, the Payroll Tax Exemption program is slated to expire on December 31, 2010; however, at least 2 facts mitigate the looming end of the program. 

First, employers who have not yet utilized the program still have an opportunity to catch up.  At my firm, we’re in the process of bringing on a new client with more than 35 business locations.  Even during this down economy, my new client has hired hundreds of employees since February 4th when the Payroll Tax Exemption program first kicked in. 

To claim the benefit, an employer must get a signed statement from the employee stating under penalty of perjury that they were unemployed during the 60 days prior to hire.  We know that many of these new employees were unemployed and would therefore be eligible.  So, as part of our boarding process, we’re surveying them — finding out which employees qualified at their time of hire. 

Now, this large employer will be exempt from the 6.2% employer-portion of the federal payroll tax for a goodly percentage of its 2010 hires.  To secure this benefit, it will have to file adjusted payroll tax returns for quarters 2 and 3. That should not be a problem.

Another benefit is that the qualifying employees who remain employed into next year (for at least 52 weeks of total employment) can trigger a bonus tax credit equal to another 6.2% of the wages paid during that first 52 weeks of employment.  We’ll continue following well into 2011 to determine the status of these employees.  Our client has an added incentive to keep them working.

For many, a technical question arises here.  Isn’t there a deadline for getting the employee’s signed affidavit?  Answer: Yes, and no.  Here’s the IRS’ way of explaining it. 

[T]he employer must have the signed affidavit by the time the employer files an employment tax return applying the payroll tax exemption. If the employer obtains the signed affidavit from the qualified employee after wages are paid to the employee, the employer can still apply the payroll tax exemption to determine its liability on these wages. In some cases this may require the filing of a corrected return for a prior quarter.  IRS FAQs

In other words, you must get the statement before you actually claim the benefit.  But, you can get the statement then go back and claim the benefit using an adjusted tax return.  In the case of my new client, their payroll service will need to file adjusted returns, IRS Form 941X in order to claim the benefit for quarters 1, 2 and 3.

So, where does this all go as of December 31, 2010?  Will the Payroll Tax Exemption program be extended for another year?  According to Paul E. Suplizio, President of the WOTC Coalition, there is no certainty but the odds favor an extension as Congress and the Administration continue to grapple with the problem of unemployment in 2011. 

If you have questions about the HIRE Act’s Payroll Tax Exemption program, or any other employment based tax benefit, please feel welcome to contact me.  I am Vaughn Hromiko, (800) 655-5281, ext 101 or vah@WOTCPlanet.com

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U.S. Treasury Department Reports RE HIRE Act Payroll Tax Exemption

Friday, August 6th, 2010

On August 2, the U.S. Treasury Department published a report titled Updated Estimates of Newly Hired Employees Eligible for the Hire Act Tax Exemption.  If you have a problem with that link, you can still read the Department’s press summary.

This new report provides monthly updated estimates of potential eligibility under the HIRE Act, including data through June 2010. According to the updated estimates, from February 2010 to June 2010, businesses hired 5.6 million new workers who had been unemployed for eight weeks or longer;

While it is interesting that businesses hired 5.6 million potentially eligible workers, the Treasure Department can not tell us anything yet about how many employees have actually been claimed as eligible.  That number is much much smaller — but how small we won’t know until next year after the 2010 tax returns has been analyzed.

Posted in Payroll Tax Forgiveness | No Responses »
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Amazing Map — Geography of a Recession — And the Hire Act Payroll Tax Exemption

Wednesday, July 28th, 2010

This amazing map was published by the American Observer (American University’s Graduate Journalism Magazine). Using color mapping, it illustrates the monthly progress of the recession in each U.S. county as reflected by increasing levels of unemployment.

With the unfortunate and deep increases in unemployment throughout the country, companies really need to be looking at their eligibility for the HIRE Act’s 2010 Payroll Tax Exemption.  If an individual has been unemployed for 60 days or more prior to their hire date, their new employer is exempt from paying the 6.2% employer portion of the federal payroll tax.  The benefit applies to wages earned from March 19 through December 31, 2010.

The YouTube version of the map is posted below but I recommend you visit the American Observer’s website and view the original presentation.

To see the original presentation, click HERE  (Don’t forget to press play.)

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