February 2010 Developments - 73

Finance Should Your Business Take cont their first twelve months of employment; • If the employee works at least 400 hours, credits are earned at 40% of the first $6,000 (for the most part) of the wages paid during their first 12 months of employment. The actual amount of credits earned will be calculated based on a combination of the amount of hours worked, the targeted group of which the employee is a member, and wages paid in their first (and sometimes second) 12 months of employment. If businesses appear to be hiring people from these targeted groups, and if the credits are as financially beneficial as they sound, why don’t more companies pursue them? The answer probably lies within the process (and accompanying timelines) of successfully getting an employee certification from state agencies. Below is an overview of the process. (1) At the time a prospective employee walks in the door to fill out an application and/or interview for a position, a process has to be in place to “pre-screen” that individual as a member of a targeted group. The law requires that this “pre-screening” take place on or before the day a job is offered. (2) Using page one of the Federal Form 8850, prospective employees provide basic information and then indicate (by checking boxes or circling bullets) whether or not they might qualify. (3) If an individual does appear to qualify and is hired, a package has to be completed and submitted to the “state workforce agency” (SWA) for certification by the 28th day following the new employee’s start date. (4) Based on the package submitted, as well as available data bases, the SWA issues a certificate of qualification for the employee and forwards it to the company. (5) The company prepares a schedule that lists the names of qualifying employees, along with their hire/ termination date(s), current year hours worked, current year wages, and targeted group category to calculate the amount of credits. (6) The company provides its income tax return preparer with the schedule calculating the tax credits, as well as copies of the employee certificates of qualification. (7) Tax credits are then claimed on the company’s tax return or allocated out among the owners (for pass-through entities) to apply against their individual tax liability. support their status as indicated on the 8850 form. • Set a quarterly reminder to check on the status of packages submitted to the SWA. (Note: It is a good idea to initiate contact with your SWA representatives to gain an understanding of their processes and documentation requirements.) • Maintain a folder of returned certificates on which to base the year-end tax credits calculation, as well as to facilitate followup on additional information requests from the SWA. The potential financial benefits of generating tax credits, based on qualifying new employees, can far outweigh any administrative impositions. If the average amount of tax credits generated per employee was somewhere in the $1,500 range ($10 per hour x 40 hours per week x 9 weeks x 40%), it would take just 10 new hires to generate $15,000 in federal tax credits. Even if it takes a $15 per hour employee an hour to assemble each qualifying new hire package (10 packages x $15 per hour each = $150), you are still way ahead! If you assume your seasonal hiring patterns and do that same math, you may very well conclude that it makes sense to take a fresh look at the Work Opportunity Tax Credits. D Michael L. Locher, CPA, and Beth W. Moore, CPA, are senior partners at the regional certified public accounting firm of Goodman & Company, LLP. Locher is Partner in Charge of the firm’s Tax Credits Consulting Practice Group, and his e-mail is mlocher@goodmanco.com. Direct Application Below are some helpful hints to making this program work for you. • Have all individuals who fill out an application complete page one of the Federal Form 8850 (whether or not you’re offering them a job). Be sure to have them check any boxes and circle any bullets that apply to them and to sign and date the form. • Maintain a folder that includes only those 8850 forms that indicate potential qualification if/when individuals are hired. • Purge the folder from time to time of the forms of those individuals who are no longer being considered for employment. • Once an employee is hired, move their 8850 form to the personnel file, and set an alarm for no later than three weeks after the start date. • When the alarm goes off three weeks later, check to see whether the employee is still with your company—if not, shred the Form 8850, unless you are certain they worked at least 120 hours. • If the employee is still with you and you are comfortable that they will end up staying 120 hours, begin assembling the package for submission to the state agency for certification. • Have a quick conversation with the employee to obtain documentation to February 2010 • Developments
February 2010 Developments

Table of Contents for the Digital Edition of February 2010 Developments
