The U.S. Senate has passed HR 5297, the Small Business Jobs Bill, by a vote of 61-37. The bill, which will be highly beneficial to some of my clients, must now go back to the House of Representatives for reconsideration there.
If passed into law, this bill will include a number of provisions relevant to hiring-based tax incentives like the Work Opportunity Tax Credit and the federal Empowerment Zone Employment Credit.
First, it would allow for general business credits, including the Work Opportunity Tax Credit, to be carried back five years. In other words, if a small business generates more WOTC than it can use in 2010, that excess credit can be carried back and utilized against tax already paid in 2009, 2008, 2007, 2006, or 2005 — resulting in tax refunds.
The Senate Finance Committee’s summary explains as follows:
Under current law, a business’ unused general business credit may generally be carried back to offset taxes paid in the previous year, and the remaining amount may be carried forward for 20 years to offset future tax liabilities. This bill extends the one year carry back for general business credits to five years for certain small businesses. This applies to general business credits for those sole proprietorships, partnerships and non-publicly traded corporations with $50 million or less in average annual gross receipts for the prior three years.
Also, the use of general business credits would no longer be limited by the Alternative Minimum Tax or AMT.
Under the Alternative Minimum Tax (AMT), taxpayers may generally only claim allowable general business credits against their regular tax liability, and only to the extent that their regular tax liability exceeds their AMT liability. A few credits may be used to offset AMT liability, such as the credit for small business employee health insurance expense. This bill allows certain small businesses to use all types of general business credits against their AMT. This applies to general business credits for those sole proprietorships, partnerships and non-publicly traded corporations with $50 million or less in average annual gross receipts for the prior three years.
An important note here is that utilization of the Work Opportunity Tax Credit is ALREADY NOT subject to the AMT limitations. The federal Empowerment Zone Employment Credit, on the other hand, would gain greater application under this bill.
For all provisions, see the Senate Finance Committee’s summary of HR 5297.