Obama 2011 Budget - Potential Impacts for Employers and PEOs

Commentary from StaffMarket Services - February 2010

Obamas Budget Proposal for 2011 contains major items for employers and PEOs. If the 2011 budget gets approved as proposed, PEOs will need to expand their offering to assist business owners with significant changes to their employment and accounting practices. Employer related subjects will include the following areas.

Small Business Tax Credit

Businesses will receive a $5,000 tax credit for every net new employee that they employ in 2010. The total amount of credit will be capped at $500,000 per firm.

Small businesses will be reimbursed for the Social Security payroll taxes they pay on real increases in their payrolls. Specifically, firms that increase wages, expand hours or hire new workers would get a credit against the added payroll taxes that result. This bonus would be based on Social Security payrolls, so it would not apply to wage increases above the current taxable maximum of $106,800.

Firms will be able to claim the credit on a quarterly basis. Non-profits will be eligible for the credit and start-ups will be eligible for half the credit.

Potential Impacts for Employers
Employers who expand their work force may be eligible for significant tax credits. Details about supporting documents for new hire data and gross payroll increases required to claim the credit are not yet available. In addition tracking the data to determine eligibility and amounts may be a challenge for business owners and managers.

Potential Impacts for PEOs
Since any available credit goes the employer, then question becomes…. Who is the employer? Convention in the PEO industry is that any and all tax credits for employment subjects should accrue to the PEO client. PEOs need to ensure that their clients are educated about the credit and provide reporting to the client that provides the values used to determine the amount of any available credits. In addition, the PEO should reimburse the amounts to the client based on the tax credit amount the client would have been eligible for outside of a co-employment relationship.

Reference Links
http://www.whitehouse.gov/sites/default/files/FACT_SHEET_Small_Business%20_jobs_and_Wages_Tax_Cut.pdf
 

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