With April 15th approaching, American businesses and individuals are in the final weeks of the tax season. With the first quarter’s hiring season completed, and the second season peaking in mid spring, consider how you can take advantage of some tax breaks and credits associated with hiring and being hired.
Tax Implications Based On the Type of Position You Hire For
Many companies are looking to reduce their overall tax burden. One approach that has become increasingly common is to hire contractors instead of an employee.
Companies are not liable for payroll taxes on contractor wages. This is a significant federal tax relief compared to the tax liability for employee wages which total 6.2% and 1.45% of an employee’s salary to social security and Medicare respectively.
When considering categorizing the person hired for the position as a consultant, companies should be sure that the position specifications meet the requirements set by the IRS. If the position does not meet the IRS guidelines, consider checking if Section 530 applies instead.
If the position does not meet those guidelines, do not worry! You may still be able to take advantage of tax credits associated with whom you hire to fill a position.
If you are an employee hired as a contractor, be sure to check out the deductions you can take, including:
- Travel expenses, including your car
- Health insurance premiums
- Retirement account contributions
- Educational expenses
Tax Implications Based on Whom You Hire
Increasing diversity in the workplace is universally recognized as beneficial to business outcomes such as performance, retention, and innovation. Hiring employees that add to your team’s diversity can also provide access to tax credits through the Work Opportunity Credit. Individuals hired from groups such as military veterans, ex-felons, those on Supplemental Security Income and other select groups can bring from $750 to $6000 in tax credits in the first year of hire.
When hiring individuals with disabilities, organizations can get tax credits for the costs associated with necessary accommodations such as removing physical barriers, or providing translation services for the hearing and visually impaired.
Tax Implications Based on Where You Hire
If you hire an employee to work in an urban or rural federally recognized Empowerment Zone, you can claim up to 20% of wages, up to 3,000 in tax credit. Review IRS publications to see if your business is in one of the empowerment zones.
Universal Tax Implications of Hiring for Your Small Business
When hiring for the exciting addition of staff to your small business no matter whom or where you hire, you can deduct ordinary and necessary costs associated with the search:
- Recruitment advertising costs
- Job fair costs
- Annual Professional Dues
- Web Site expenses
- Legal fees
- Recruiting/search agency fees
- Home office expenses or office lease
If you have engaged in a job search of your own this year, tax breaks are available for you as well.
You can deduct expenses for a job search such as resume printing and mailing costs, travel expenses, and fees for a placement agency. Just make sure you keep those receipts.
Looking ahead at Tax implications of employee training:
With many open positions unfilled because of lack of qualified candidates, businesses are looking for ways to reduce costs of training.
A bill introduced to the House of Representatives, H.R. 4088 proposes a tax break of up to $1,250 for each employee to cover the cost of training that updates or teaches new skills in the field.
No matter whom, for what position, or where you are hiring, there are many tax credits and deductions that can help your business offset the initial costs of recruitment and hiring. Of course, the best cost-reducing measure for hiring is to hire the right person for the job the first time. Contact Huntbridge for proven results with hiring that can help improve your tax liability.
This tax information is not legal or financial advice. Please consult with a tax professional to confirm the applicability of this information.