Obama Proposes Business Tax Reforms

Manufacturing Incentives

To improve incentives for manufacturing, the framework calls for making the Research and Experimentation Tax Credit permanent, noting that it has been extended temporarily 14 times since its creation in 1981, with some extensions lasting just 6 months. The credit was allowed to lapse for 12 months in the mid-1990s, and, as of Jan. 1, 2012, the R&E tax credit has expired again.

“Making the R&D tax credit permanent is a good thing,” said Steve Henley, national tax practice leader at CBIZ MHM. “Having all these extenders expiring and Congress coming in and extending them again is not good tax policy.”

It also proposes to make the credit simpler, noting that currently, businesses must choose between using a complex formula for calculating their R&E Tax Credit that provides a 20 percent credit rate for investments over a certain base and a much simpler one that provides a 14 percent credit in excess of a base amount. “The complex formula is so outdated that it takes into account the amount of a business’s R&D expenses from 1984 to 1988,” said the document. “The President’s Framework would increase the rate of the simpler credit to 17 percent, which would make it more attractive and simplify tax filing for businesses. In addition, the credit would be made permanent to increase certainty and effectiveness.”

IL Businesses Qualify for $67 Million in WOTC Credits

Illinois businesses qualified for $67 million in income tax credits by hiring workers covered through the Work Opportunity Tax Credit (WOTC) in 2011, the Illinois Department of Employment Security (IDES) recently announced. The federal incentive, administered in Illinois by IDES, reduces an employer’s cost of doing business while helping those most in need gain valuable work experience.

“This valuable program helps a business owner improve the bottom line and offers a hand up to those who want to make a better life for themselves and their family,” IDES Director Jay Rowell said. “This is real progress in helping businesses compete, assisting individuals to find gainful employment, and improving the Illinois economy. It also shows that employers increasingly view IDES as an employment agency.”

WOTC incentives allow business owners to keep more of their money by hiring from historically disenfranchised groups. In 2011, Illinois employers hired more than 27,000 workers under the WOTC program. Most of the qualifying workers were receiving state financial assistance. The program therefore benefits the state by reducing reliance on state-supported services.

The credits range from $2,400 in one year to $9,600 over two years, depending on the new hire. The $67 million in savings represents 2011 activity that will be entered in federal tax returns in 2012.

Workers qualifying for WOTC credits include the following:

  • individuals receiving Temporary Assistance for Needy Families
  • qualified military veterans
  • qualified ex-felons
  • a designated community resident who lives in a renewal zone
  • vocational rehabilitation referrals with a physical or mental impairment who have received vocational or employment training
  • summer youth employees
  • qualified food stamp recipients
  • qualified supplemental security income beneficiaries

Employers should note that qualifications for veterans were expanded in November 2011 as part of the federal Vow to Hire Heroes Act. For more information on the credit, visit www.doleta.gov/.

To claim the federal tax credit, employers must use IRS Form 5884. Businesses can apply for WOTC certification for new hires by doing the following: 1) pre-screen individuals using IRS Form 8850, the “Pre-Screening Notice & Certification Request for Work Opportunity Credit;” 2) complete ETA Form 9061, the “Individual Characteristics Form;” and 3) mail the original, signed forms to IDES’ WOTC Unit within 28 days of the new hire’s start state.

IDES recommends keeping copies of WOTC forms. Forms and details are available at www.ides.illinois.gov/wotc.

IDES supports economic stability by administering unemployment benefits, collecting business contributions to fund them, connecting employers with qualified job seekers, and providing economic information to assist career planning and economic development. It does so through nearly 60 offices, including Illinois workNet centers.

IRS Offers More Info on Veteran Tax Credit


Click here to find out more!


Kelly Phillips Erb, Contributor (Forbes.com)

Remember the newly expanded tax credit for hiring veterans that was passed last year?

The IRS has finally issued more guidance on the credit. The Returning Heroes and Wounded Warriors Work Opportunity Tax Credits was part of the VOW to Hire Heroes Act of 2011, which was announced on Veterans Day last year. The credit give employers a tax credit for hiring a qualified veteran. A qualified veteran is defined as a veteran with aggregate periods of unemployment of at least 4 weeks but less than 6 months in the year prior to being hired or with aggregate periods of unemployment of 6 months or more in the year prior to being hired.

The law allows employers a tax credit per veteran. The maximum credit is applicable for employers who hire vets with service-related disabilities. Other factors that affect the amount of the credit include the length of the veteran’s unemployment before hire, hours worked and the amount of wages paid. Also important? Whether the employer is a for-profit employer or a tax-exempt organization.

The IRS has also released the applicable forms. The federal form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, (downloads as a pdf) must be filed by June 19, 2012 for employers who make a qualified vet hire between November 22, 2011, and May 22, 2012. Eligible employers who make a hire after May 22, 2012, must file the federal form 8850 within 28 days after work begins.

The IRS has confirmed that the form 8850 may be transmitted electronically or via fax, assuming that the state workforce agencies accept submissions in those formats.

To claim the credit, an employer figures the amount on the federal form 5884, Work Opportunity Credit, (downloads as a pdf) and entered on a federal form 3800, General Business Credit, (downloads as a pdf) to be filed together with the employer’s income tax return.

For more information, check out Notice 2012-13 (downloads as a pdf).

Conferees Homing In on Payroll Tax Cut Deal


Top negotiators are nearing a deal to extend the payroll tax cut, unemployment benefits and a fix to Medicare doctors’ payments, sources close to leadership in both parties said today.

With leaders in both parties publicly threatening to move ahead with backup plans, members of a conference committee assigned to resolve the differences between the House and the Senate appear to have gotten the boost they needed to break their impasse when House GOP leaders Monday backed off demands that the payroll tax holiday be fully offset.

Both leadership sources and sources close to the conference committee were cautiously optimistic that the group could have a deal in hand before the House moves to a vote on a stand alone tax cut bill, which is slated for floor action Wednesday.

Aides said that the remaining key issues facing lead conferees House Ways and Means Chairman Dave Camp (R-Mich.) and Senate Finance Chairman Max Baucus (D-Mont.) are whether to include expiring tax extender provisions. They also were working on the final details on offsets for the nearly $60 billion required to pay for jobless benefits and the Medicare “doc fix,” which fills the gaps for doctors treating Medicare patients.

Major progress in the talks began in earnest at the end of last week and continued through the weekend. Sources said they believe the next 12 hour to 24 hours will be crucial in determining whether the House and Senate will vote on the conference report, which is can’t be amended, or whether they will move on separate legislation which would have to start in the House.

“I’m hopeful and cautiously optimistic that the House will work with us so that the conference can be completed to include that, and hopefully also some of our tax extenders,” Senate Majority Leader Harry Reid (D-Nev.) said today. “So I’m not going to get into hypotheticals to what happens, but right now, we’re waiting to see what we get from the House, and then we’ll decide what we have to do in the foreseeable future after that.”

A source familiar with the talks said that spectrum auctions and savings from federal workers’ pension reform likely will be used to offset the costs of the unemployment insurance and doc fix extensions.

Multiple sources confirmed that House Republican leadership will present the potential agreement to their conference at a meeting tonight.

IRS Issues New Rules for Claiming New Vet WOTC Categories

Written by Max Shenker on February 9, 2012

The IRS released a bulletin today explaining the new WOTC categories established by the VOW to Hire Heroes Act of 2011 which was enacted Nov. 21, 2011. The Service also provided more detailed guidelines as well as an update form 8850.

The guidelines introduce three significant changes to the mechanics of the program:

1. Since the the Act became effective immediately upon passage, the IRS has suspended the normal 28 day deadline for completion of 8850 forms. For the new veteran categories, taxpayers may complete and submit 8850 forms for any qualified employees hired between Nov. 22, 2011 and May 22, 2012 by June 19, 2012. The 28-day rule goes back into effect for employees hired on or after May 22.

2. The IRS is allowing that 8850 forms may be submitted by fax if the State agency is able to accept them that way.

3. The IRS is allowing the 8850 forms to be signed electronically and for states without electronic submission systems, these electronically signed documents may be submitted in hard copy or by fax.