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Special Report

For Small Business Week- IRS Spotlights Expanded Tax Credit for Hiring Veternas, Credit for Providing Health Care Coverage to Employees and Tax Relief

Updated on May 30, 2012- The Internal Revenue Service marked Small Business Week, May 20-26; by encouraging small business owners to check out Two (2) key TAX Credits and Special Relief Programs that could provide significant tax benefits during 2012.

Both the, expanded credit for hiring veterans and the credit for employer-provided health care coverage can provide tax savings to eligible small businesses when they file their 2012 Federal Income Tax Returns. In additions, substantial relief from past payroll tax obligations is available to eligible employers who agree to reclassify their workers as employees in the future.

Expanded Tax Credit for Hiring Veterans:

A law change enacted late in 2011, now provides an expanded Work Opportunity Tax Credit (WOTC) to employers that hire eligible unemployed veterans. The credit can be as high as $9,600 per veteran for for-profit employers and up to $6,240 for tax-exempt organizations. The amount of the credit depends on a number of factors which include; The length of the veteran’s unemployment before hire, hours a veteran works, and the amount of first-year wages paid. Employers who hire veterans with service-related disabilities may be eligible for the maximum credit.

Certification requirements apply to these new hires. Normally, an eligible employer must file Form 8850 with the State Workforce Agency within Twenty-Eight (28) days after the eligible worker begins work. However, under a special rule, employers have until June 19, 2012 to complete and file this form for veteran’s hired on or after November 22, 2011 and before May 22, 2012. The 28-day rule will again apply to eligible veterans hired on or after May 22, 2012. The form may be faxed or electronically transmitted to the State Workforce Agency, as long as the agency is able to receive the certification forms in that manner.

Businesses may claim the credit on their income tax return by using Form 5884 and Form 3800. A separate claim procedure using Form 5884-C applies to eligible tax-exempt organizations. Details are available on the Internal Revenue Services website at IRS.gov

Small Business Health Care Tax Credit:

Small employers that pay at least half of the premiums for their employee’s health insurance coverage under a qualifying arrangement may be eligible for the small business health care tax credit. Enacted in 2010, the credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.

Eligible small employers can claim the credit for 2010 through 2013 and for Two (2) addition years beginning in Calendar Year 2014. Targeted to small employers that primarily employ low and moderate income workers, the maximum credit for tax years 2010-2013 is 35 percent (35%) of the premiums paid by small businesses and 25 percent (25%) of the premiums paid by tax-exempt organizations, respectively increasing in 2014 to 50 percent (50%) and 35 percent (35%).

Small businesses may claim the credit on their income tax return by using Form 8941 and Form 3800. Tax-exempt organizations  may also use for Form 8941 and then claim the credit on Form 990-T.

The recently revamped Small Business Health Care Tax Credit page on the Internal Revenue Service website at irs.gov has more information and resources designed to help small employers see if they qualify for the credit and then figure it correctly. This includes a step-by-step guide for determining eligibility; examples of typical tax savings under various scenarios, answers to FAQ, a YouTube Video and a Webinar.

Many Business can qualify for Substantial Payroll Tax Relief:

Many businesses can now resolve past worker classification issues at a low-cost by voluntarily reclassifying their workers. Better yet, they don’t have to wait for an IRS audit to do so.

By prospectively reclassifying workers, making a minimal payment and meeting a few other requirements, eligible businesses can achieve greater certainty for themselves, their workers, and the government.  Since it was launched in September 2011, over 540 employers have been approved to participate in the new IRS Voluntary Classification Settlement Program (VCSP).

The VCSP is available to many business, tax-exempt organizations, and government entities that erroneously treat their workers, a class, or a group of workers as Non-Employees or Independent Contractors; and, now want to correctly treat these workers as employees in the future.  

To be eligible, an employer must:

  • Consistently have treated the workers in the past as non-employees;
  • Have filed ALL required Forms 1099 for the workers for the previous Three (3) years;
  • Not currently be under audit by the Internal Revenue Service (IRS); and,
  • Not currently be under audit by the Department of Labor or a State Agency concerning the classification of these workers.

Employers that are interested in the VCSP can apply for the program by filing Form 8952. Employers accepted into the program will pay an amount effectively equaling just over One (1%) percent of the wages paid to the reclassified workers for the past year. Participating employers will not be audited on payroll taxes related to these workers for prior year. Further details are available on the Employment Tax pages of the Internal Revenue Service website at irs.gov and in Announcement 2011-64.

Details on these and other tax benefits are available on the Internal Revenues website at www.irs.gov. The Small Business Tax Center (www.irs.gov/smallbiz) has links to a variety of useful tax tools for small businesses, including the Virtual Small Business Tax Workshop, a Downloadable Tax Calendar, Common Forms and their Instructions, and help on everything from how to get an Employer Identification Number (EIN) online, and how to engage with the IRS in the event of an audit.

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