In an effort to offer our clients the highest level of service, PayPros, Inc. now offers tax incentive services through Paradigm Partners, the national leader in securing financial benefits for businesses through state and government programs. Paradigm Partners will perform a cost free analysis in an effort to identify any programs for which your company may qualify.
Below is a list of tax incentive services available through PayPros, Inc..
What is the Work Opportunity Tax Credit?
The Work Opportunity Tax Credit (WOTC) is a federal tax credit that reduces the federal tax liability of any for-profit employers. Employers can hire from eleven different targeted groups:
*The credit is based on 40% of up to $6,000 in qualified wages during the first year of employment. Summer Youth qualify for 40% of the first $3,000 in wages during the required working period of May 1 through September 15.
Minimum Employment or Retention Period
All new employees must work a minimum of 120 hours and 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. Recent program changes took place in 2007 that impacted multiple target groups. One such change was the consolidation of the Welfare-To-Work Tax credit program into the WOTC program to become known as Long-Term Family Assistance and a second change was the creation of the new Disabled Veteran target group that went into effect May 25, 2007. On February 17th as part of the American Recovery and Reinvestment Act (ARRA) of 2009 two new categories were created Unemployed Veterans and Disconnected Youth.
The WOTC Program has been reauthorized until August 31, 2011
Long-Term Family Assistance Recipients who began work after December 31, 2006 and before September 1, 2011, can earn employers up to $9,000 if they are a member of a family:
Disabled Veterans who began work after May 25, 2007 and before September 1, 2011, can earn employers up to $4,800 if they:
Are there any employer incentives for hiring employees who work in an Enterprise Zone (EZ) or Renewal Community (RC)?
Yes. The tax code allows employers a credit against Federal taxes for hiring and retaining employees who live and work in an EZ or RC. The EZ Wage Credit has been available since 1994 for Round I EZs and since 1998 for the District of Columbia.
Can a business use this credit for current employees?
Yes. The EZ Wage Credit and RC Wage Credit are incentives to hire and retain individuals who live in an EZ or RC, so it is available each year throughout the EZ Wage Credit and RC Wage Credit periods.
What if the employee works part-time?
The credit is available for both part-time and full-time employees as long as they have been employed by the employer for at least 90 days. The amount of the credit is tied to the amount of wages paid rather than to the number of hours worked.
What is the credit amount?
The EZ Wage Credit amount is up to $3,000, and for the RC Wage Credit is $1,500.
Is there a limit on the number of employees for which a business can take the credit?
An employer can take the credit for as many employees as qualify.
What if the employee works in an EZ or RC for only part of the year?
An employer can use either the pay-period or calendar-year method for determining the period of time the employee performs services in an EZ or RC. No other time periods can be used to prorate the credit.
For example, if an employee works in several factory locations and is paid weekly, an employer can claim the wage credit for the weekly pay periods during which the employee works substantially all of his or her time in the factory located in an EZ or RC.
What if the Federal tax liability of the business is less than the total credit amount?
The EZ Wage Credit and RC Wage Credit generally are subject to the same rules as other business tax credits. As with other business tax credits, unused credit amounts can be carried forward for up to 20 years and carried back a year. However, the credit cannot be carried back prior to the EZ or RC designation.
Can a pass-through entity, such as a partnership, Limited Liability or S-corporation, use the credit?
The EZ Wage Credit and RC Wage Credit are general business tax credits for Federal tax purposes and may be passed through under the rules similar to other business tax credits.
Which categories of employees would not qualify for the EZ and RC Wage Credits?
The EZ and RC Wage Credits cannot be taken for any individual employed at any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other gambling facility, or store whose principal business is the sale of alcoholic beverages for consumption off premises. The EZ and RC Wage Credits are not available for family members of the employer, including sons, daughters, parents, stepchildren, stepmothers, stepfathers, in-laws, and other persons treated as dependents under the tax code. Similar exclusions apply to 5 percent owners related to the employer and family members of majority shareholders or partners of the employer.
Often referred to as a job stimulus bill, the HIRE Act provides a payroll tax exemption to employers who hire unemployed workers after February 3, 2010, through the end of 2010. The tax break applies to wages paid with respect to employment on the day after the HIRE Act becomes law through the end of 2010. Also in the HIRE Act, a new hire retention credit of up to $1,000 per individual is available for employers who retain these previously unemployed workers for at least 52 weeks in a row.
Payroll Tax Exemption (Section 101)
Section 101 of the HIRE Act provides details on the payroll tax exemption. Under these provisions, most employers do not have to pay their portion of Social Security taxes (6.2 percent) for newly hired, unemployed individuals, who are called “qualified individuals.” With one exception, this payroll tax exemption is not available to U.S. and state governments, or any of their political subdivisions (e.g., city or county governments). The exception is that the tax break is available to public institutions of higher education (as defined in §101(b) of the Higher Education Act of 1965).
The Requirements for a Qualified Individual under the Hire Act are as follows:
- The individual began employment with the qualified employer after February 3, 2010 and before January 1, 2011.
- The individual was employed for no more than 40 hours in the last 60 day period ending on the date that the individual was hired.
- The new hire needs to fill out an affidavit indicating that they were unemployed and sign it under penalties of perjury.
- The individual was not employed to replace another employee unless the other employee resigned voluntarily or was terminated for cause.
- The new employee cannot be a relative of any owner who has 50 or more percent ownership.
The IRS recently clarified several important aspects of the payroll tax exemption. The law applies to “wages paid by a qualified employer with respect to employment during the period beginning on the day after the date of enactment and ending on December 31, 2010.” The IRS interprets this to mean any wages paid on or after March 19, 2010, regardless of when the wages were earned.
Employers of all sizes qualify for the payroll tax break. It applies to part-time and seasonal employees, regardless of exempt/non-exempt status or hourly/salaried payment method. Rehires would be included as well.
New Hire Retention Credit (Section 102)
Under Section 102 of the HIRE Act, if the qualified individual is retained by the employer for 52 consecutive weeks, the employer is entitled to a new hire retention credit of up to $1,000 per individual. The credit is equal to the lesser of 6.2 percent of wages or $1,000. In other words, if wages are at least $16,129.03, then the new hire retention credit is $1,000. Otherwise, it is 6.2 percent of wages. During the last 26 weeks of that period, the qualified individual must have wages that are at least 80 percent of the wages for the first 26 weeks.
During our Work Opportunity Tax Credit Screening we are also looking for potential Employment Network eligible new hires who will qualify for the Ticket to Work Program.
What makes your new hire eligible?
If the new hire has been receiving either Supplemental Security Income or Supplemental Disability Income through the Social Security Administration, they may be potentially eligible for this program.
How does the new hire become eligible?
We will provide a simple one page form that needs to be filled out by the new hire and returned to Paradigm Partners and our staff handles the rest.
As the employer is there a retention commitment for the new employee?
No, you are only compensated for the time in which the employee works for you up to 5 years. There is no recapture or penalties for terminating employment.
How much do i have to compensate the employee to receive a cash benefit?
The new hire must earn at least $720 monthly for the first nine months and $1,000 monthly from month ten through sixty.
What is the amount of the benefit can I expect from Paradigm Partners?
As long as the employee meets the minimum income requirements the employer can expect to receive the following:
- $425 after first month
- $425 after first three months
- $425 after first six months
- $425 after first nine months
- $125 monthly from month 10 to 60
How does this affect the work Opportunity Tax Credit?
Employment Network Payments do not affect WOTC credit calculations or reduce the amount of credit available to be utilized. The opposite is true, employees that have received Employment Network eligibility are given a ticket to work and automatically qualify for WOTC.
Is there a cap to the amount of payments under this program?
There is no cap to the amount that payments received under the program.
How many of my new hires will potentially qualify for this program?
It is our experience that 10% of all your WOTC eligible new hires will qualify for this program.
What makes Paradigm Partners so effective?
Not only do we offer the screening tools and credit calculations, but in order for your company to maximize your potential benefit your tax partner must do more. That is why we feel this service is so valuable, some highlights of our service screening services are:
- Customizable screening options which includes
- Live operator phone screening
- Conventional paper screening
- We help manage internal compliance
- Match screened new employees to actual new hires.
- Identify non-compliant areas, and work with them to make them compliant
- Educate hiring managers about the credit
- Make sure that supervisors are aware of employees’ eligibility so the company maximizes the credit.
- Identify how employer can target potentially certifiable job candidate pools.
Employees that are certified members of an approved Native American tribe or the spouse of a certified member are qualifying employees. The employee must live on or “near” the reservation and perform the majority of the work on the reservation and has worked for a minimum of one year.
The company must be non-Indian or non-Tribal owned business and located on the reservation.
Tax Credit Available
The maximum annual credit available is $4,000 per eligible employee.
- Millions of dollars in tax credits, resulting in cash back from the IRS for previous open tax years
- $1 for $1 reduction on current year’s tax liability
- Additional tax savings in future years
- Carry-forward up to twenty (20) years
- Software Developers
- Tool and Die
- Machine Shops
- Plastics Manufacturers
- Food Sciences/Manufacturers
Our turnkey package includes:
- Credit Calculations, Detailed Timesheets and Summaries
- Engineering Report
- Research & Development Audit Defense at no additional cost
- Support level for CPA
Our refund review is focused on recovering sales and use tax overpayments and most importantly, helping you improve future compliance. We can perform a comprehensive review and analysis of your company’s sales and use tax transactions and processes. We determine, through our review process, whether or not you have paid more than your fair share. During this review we identify exempt transactions where tax may have been inadvertently overpaid.
We work with you to implement policies and procedures on a go-forward basis, and look for sales and use tax planning ideas that lead to an increase in cash flow and reduction of operational costs.
- Manufacturing and high tech/growth industries;
- Companies who purchase large amounts of property for their own use in manufacturing, shipping, hospitality & service enterprises;
- Any company previously audited or currently slated to undergo a sales/use tax audit.
- Manufacturing equipment;
- Manufacturing related purchases (repair parts, tools, molds, dies);
- Ingredients and components (raw materials, catalysts, cleaners, fuel);
- Packaging materials.
- Refund reviews;
- Audit representation and defense;
- Self-managed/internal audits/reviews;
- Tax guides and manuals;
- Nexus studies;
- Dispute/notice resolution;
- Letter rulings;
- Tax planning;
- Exemption certificate management;
- Process improvements;
- Sampling analysis and evaluations;
- Predominate use studies for utilities.
- Assisted Living
- Apartment Buildings
- Automobile Dealerships
- Bank/Financial Institution
- Fitness/Health Clubs
- Golf/Resorts Heavy
- Hospital/Medical Office Buildings
- Hotels and Motels
- Light Manufacturing
- Office Buildings
- Restaurants (single or multiple)
- Self Storage Facilities
- Strip or Regional Malls
- Tenant Improvements Warehouses
Candidates for Cost Segregation include the following:
- New Construction
- Look Back
- New Acquisition (Purchase Price Allocations)
- Leasehold Improvements
Commercial property that is valued at a minimum of $1,500,000 (excluding land value) or a commercial property with leasehold improvements greater than $750,000 have enough potential benefits to warrant a study.
- Time Value of Money
- Dramatic reduction in taxable income
- Increased cash flow for investment opportunities and business expansion
- Property tax savings
- Insurance savings
1st Year Tax Savings
1st Year Tax %Cap Costs
1st 5 Years Tax Savings
1st 5 Years %Cap Costs
Green Building Energy Efficiency Tax Deductions (Section 179D)
The Energy Policy Act of 2005 added section 179D to the Internal Revenue Code. Section 179D permits a deduction for the costs of installing certain energy efficient building systems in commercial buildings.
To claim the deduction, a taxpayer must obtain a certification of energy savings. The certification process must be performed by a qualified firm or individual that performed an on-site inspection of the building. The energy savings must be calculated using qualified software from the Treasury Department’s list of certified software programs. Paradigms staff includes engineers that are qualified and certified to perform Green Building studies.
Green Building 179D Energy Efficiency Tax Deductions
A tax deduction of up to $1.80 per square foot is available for improving the energy efficiency of existing commercial buildings or designing high efficiency into new buildings. Investments that appreciably reduce the heating, cooling, water heating and interior lighting energy cost of new or existing commercial buildings are eligible for a tax deduction.
Overview of Paradigms Green Building Study Process
- Review specifications and determine if building qualifies
- Site visit
- Certified engineer performs the energy modeling and analysis
- The study is completed and turned over to the building owner and their financial advisor.
As with many tax incentives, there is a chance for an IRS audit. In the event of an audit, our fee for a study includes 40 hours of audit support. Paradigm feels comfortable in providing audit support because our engineers are experienced and follow all the rules and regulations as required by the IRS. In addition we feel our studies will withstand IRS scrutiny because we follow the methodologies recommended by the IRS.
What is an IC-DISC?
IC-DISC is an acronym for Interest Charge – Domestic International Sales Corporation. It is the last remaining export incentive available to U.S. exporters. It has been around in its current form since 1984, but did not become popular until the Jobs and Growth Tax Relief Reconciliation Act of 2003 lowered the capital gains tax rate making it much more attractive for exporters.
It is a domestic ‘paper’ entity that does not require employees, offices, or tangible assets. To be an IC-DISC, a corporation must be organized under the laws of a State or the District of Columbia and elects to be treated as an IC-DISC and is governed under Internal Revenue Code §§991-997.
Which Companies Qualify?
The different entity types that can use the IC-DISC include flow-through entities (S-Corps, partnerships, LLCs, etc.); and closely-held C-Corps. It’s important to note that you do not have to be the manufacturer of any products to take advantage of IC-DISC – you qualify if you export domestically produced products.
The industries that have taken advantage of IC-DISC include:
- Software Companies
- Engineering/Architectural firms working on buildings/structures in
IC-DISC is only viable and valuable to the shareholders if the following criteria apply:
- Minimum annual gross export revenues of $2,000,000 (direct or indirectly)
- Minimum annual net export revenues of $500,000 (direct or indirectly)
- Significant tax liability on current or projected revenues
What are the benefits? An IC-Disc Example
Step #1: The exporting company creates a tax-exempt IC-DISC. The IC-DISC is a “paper” entity that does not require office space, employees, or tangible assets. In this example, the IC-DISC is set-up under the ownership of the individual shareholders of the exporting company.
Step #2: The exporting company pays the IC-DISC a commission. The IC-DISC commission may be determined as the greater of 50% of export net income or 4% of export gross receipts. The commission may be increased even more in certain instances.
Step #3: The exporting company deducts the commission amount paid to the IC-DISC from its ordinary income taxed at 35%. The commission income for the IC-DISC is deferred from current taxation.
Step #4: When the IC-DISC pays dividends to its shareholders, the shareholders pay dividend income tax, currently at a rate of 15%.
Step #5: The net effect is a 20% tax savings on the IC-DISC commission.