I am surprised as to how many business owners these days are unfamiliar with all of the tax credits available to the average business. In fact, I did a poll at a local chamber meeting, and in a room of 100+ business owners, not one was familiar with the few tax credits I am about to discuss. These tax credits are made available to businesses to help them through these hard economic times, and in many cases, thousands of dollars are left on the table.
The big one is the Hiring Incentives to Restore Employment (HIRE) Act tax credit. An employer can very likely be eligible to receive this immediate credit, but most likely lets it slip through their hands. This Act, signed by President Obama on March 18th, 2010, grants employers a tax holiday on their share of Social Security tax (6.2% of wages) on qualified, newly hired employees. Qualification is fairly easy and here are a few of the key requirements; 1) the employee needs to have been hired after February 3rd, 2010, 2) the new employee must not have worked more than 40 hours during the 60 days prior to their hire date, and 3) is not a family member of the employer. The new employee signs a new IRS W-11 form stating these facts, and starting immediately, the employer does not have to pay his share of the Social Security tax through December 31st, 2010. This can amount to a tax credit savings of up to $6,621.60 per employee. By the way, if you do have a qualified employee and are just now learning about the credit, it can be taken retroactively!
In addition to this immediate Social Security tax credit, the Act provides for even more tax credits. If the new employee is retained for 52 consecutive weeks, the employer is entitled to a one-time business tax credit of $1,000 on their 2011 tax return.
Another new tax credit that a business may be eligible for without having to do anything different is the Health Care Tax Credit. This credit is provided for under the Patient Protection and Affordable Care Act, also signed by President Obama on March 23rd, 2010. This one states that an employer who pays for health insurance coverage on its employees can take a business tax credit on the 2010 tax return by an amount of up to 35% of the insurance premiums paid. This one is geared towards the small business, so as a business approaches 25 full time equivalent (FTE) employees and their average annual wages for those employees exceed $50,000 the credit percentage diminishes. To give you an idea of the power of this credit, say employee health insurance coverage is $400 per month and the employer pays 50%. Multiply the $200 of eligible premium by 35% times 10 employees over 12 months, and you get an $8,400 tax credit.
As you can see, with just these two tax credits, there is thousands of dollars available for any business. Not to mention all of the credits I did not go over and the new ones coming. The key is keeping informed and current on what is available and how it applies to your business. One way is to out-source your payroll processing functions. A good payroll company will keep you informed of the credits available, handle the filing, and get you the credit you deserve.