Are you taking advantage of year-end tax opportunities?
- The Work Opportunity Tax Credit includes many areas of eligibility and the Employee Retention Credit gives employers three years to amend payroll tax returns.
- Credits and deductions for hiring and improving access for disabled individuals are available at state and federal levels.
- Various proposed policies and regulatory changes could impact health care coverage in your state.
- Review year-end considerations to help keep your employee benefit plan safe and compliant.
The Consolidated Appropriations Act, 2021 was signed into law just as most employers were preparing to ring in the new year last year. With it came a myriad of legislative opportunities that continued to be enhanced and modified by the American Rescue Plan Act of 2021 and the Infrastructure Investment and Jobs Act. As the year comes to a close, some relief programs remain open to employers and should be discussed with tax, wealth, and other advisors.
Work Opportunity Tax Credit (WOTC)
Although this credit is not new to many employers, in 2021, the credit broadened to include the newly extended authorized federal empowerment zones. What this means for employers is that if any of their employees are between the ages of 18 and 40 and reside in a federal empowerment zone at the date of hire, their wages will be eligible to generate a federal income tax credit of up to $2,400.
Other eligibility categories are increasingly relevant as a result of the pandemic, including the long-term unemployment category. To be eligible, new employees must be in a period of unemployment that has lasted at least 27 weeks and at some point have received either federal or state benefits. Categories also include food stamp recipients, temporary assistance for needy family recipients, certain veterans, and ex-felons.
In many cases, employers are finding that 25% of their incoming workforce are qualifying for and generating significant tax credits to offset federal income tax liability. Follow the appropriate protocols to capture various opportunities from this relatively simple tax credit.
Employee Retention Credit (ERC)
Although repealed for Q4 of 2021, the ERC is an opportunity for eligible employers who either experienced a significant decline in gross receipts or were fully or partially suspended by a government order. What many employers don’t know is that they have three years to amend payroll tax returns for refunds of up to $7,000 per employee per quarter in each of the first three quarters of 2021 — and up to $5,000 per employee in 2020. The IRS continues to issue notices and revenue procedures to help employers understand whether they qualify for the credit, and to expand relief qualifications for many organizations. Also, the proposed Build Back Better (BBB) legislation may reinstate the credit for the fourth quarter, so stay tuned for updates.
Disabled access credits and deductions
Small businesses may claim a one-time federal credit for hiring certain individuals with different abilities. Additionally, businesses that remove barriers to access may claim a deduction for up to $15,000 for qualifying expenses that would otherwise be capitalized. Many states also offer credits for hiring employees who meet certain criteria. These credits can be as much as $20,000 per qualifying employee.
Health care policy and regulatory changes have direct and indirect impacts on employers and health care providers (including health care providers who are employers). While we do not know if or when the BBB legislation will be enacted, there are various policies that could impact health care coverage in your state. These changes revolve around Medicaid and federal marketplace coverage. To extend health care coverage to more individuals, the policies in BBB are designed to be more generous than previous requirements, including individuals who received unemployment at any time in 2021.
While it remains to be seen whether mandatory guaranteed paid family and medical leave requirements will remain in the final BBB version, it is in the current, U.S. House-passed version of the bill. If retained and subsequently enacted, this would be the first time for a such a guaranteed paid leave requirement.
For health care providers, be aware of various regulatory policies, including a requirement to use certain COVID-19 Provider Relief Funds by December 31 and then begin reporting on them come January. Additionally, there are changes that take effect January 1 to prohibit “surprise medical bills” in many situations when patients are out-of-network. If you’re an employer who self-funds your health coverage, discuss these changes with your third-party administrator.
If you or your organization received money from federal or state sources, you may be burdened with specific regulatory compliance reporting. For some, the funding may even require your organization to have a financial statement audit. Effective compliance reporting relies on having an in-depth understanding of the requirements and the resources to meet them. Talk with your tax advisor to make a plan that meets your specific needs.
Year-end considerations related to your retirement plan include:
- Understanding current legislation and accounting and auditing changes
- Identifying common practices for plan administration
- Understanding cybersecurity risks and how to keep your assets safer
- Understanding fiduciary requirements
How we can help
At CLA, we consider your particular circumstances to help guide you through decisions and devise a tax plan that aligns with your objectives and available opportunities. We continuously monitor tax legislation and administrative guidance to help you understand significant developments and how they could affect you. Whether it’s general grant compliance or specific to a program such as the Provider Relief Fund, CLA has customized strategies to steer you through the process. We can also assist with identifying opportunities related to your employee plans for training, turnover, and growth.