Small Business Jobs and Wages Tax Cut Proposal On Jan. 29, President Barack Obama proposed a Small Business Jobs and Wages Tax Cut initiative that would give all businesses a $5,000-per-worker tax credit for new hires and refunds of payroll taxes paid if firms increase their workers' wages. Under his proposal, employers would receive a tax credit of up to $5,000 against their payroll taxes for every net new employee they hire in 2010. Start-ups would be eligible for half the credit. The credit would be administered off an employer’s unemployment insurance wage base (equal to 72 percent of the unemployment insurance wage base increase, or a $5,000 credit for each additional worker who earns at least $7,000). The maximum credit will be limited to $500,000 (100 employees) per business Additionally, the proposal aims to encourage wage increases for employees as well. Businesses will receive a bonus 6.2 percent tax credit on aggregate wages in excess of inflation—reimbursing the employer for the Social Security payroll taxes they pay on those payroll increases. This wage bonus would be calculated off the Social Security payroll tax base, so firms would not get credit for increasing wages for employees making more than the current taxable maximum of $106,800. Employers would have the option of receiving the tax credit on a quarterly estimated basis. Non-profits would be eligible for the credit but state and local governments would not be eligible. Businesses that reduce employment or payrolls in 2010 would be ineligible for both the $5,000 credit and the wage bonus. The House has passed a jobs bill that includes some of these proposals, and it is expected the Senate will do the same in the coming months. Meanwhile, Obama has included the Small Business Jobs and Wage Tax Cuts proposal in his FY 2011 budget blueprint to Congress. For those business owners who are contemplating hiring a new employee, this could be a good incentive to jump on the opportunity to hire a new employee. For those businesses not currently considering hiring, a $5,000 tax credit isn't likely to off-set the long-term commitment of hiring a new employee. Tell us what you think. Join the NSBA Group on LinkedIn. |