29 December 2017 Year-end employment-related tax credits update The month of December contained several positive updates for employers that take advantage of federal employment-related tax credits. As we head into 2018, please find below an update on key employer-related tax credit opportunities. Work Opportunity Tax Credit — preserved through December 31, 2019, under final Tax Cuts and Jobs Act After months of discussion, debate, negotiation, votes and re-votes, the Tax Cuts and Jobs Act (TCJA) was signed by President Trump on December 22, 2017. While the original House bill would have eliminated the Work Opportunity Tax Credit (WOTC) for wages paid or incurred to employees hired after December 31, 2017, the conference agreement did not follow the House provision. The enactment of this law signifies that the WOTC program will remain in effect for wages paid or incurred to employees hired on or before December 31, 2019. The TCJA included a two-year tax credit for employers equal to a percentage of wages paid to employees during periods of family and medical leave. This entirely new provision under new IRC Section 45S, takes effect for tax years beginning after December 31, 2017, and was previously not contemplated anywhere in the federal tax code. IRC Section 45S offers a general business credit of between 12.5% and 25% of wages paid to both part-time and full-time employees while on family and medical leave. This is a nonrefundable credit and sunsets at the end of 2019 unless reinstated. Further IRS guidance is anticipated. (For more information, see Tax Alert 2017-2216.) Federal Empowerment Zone and Indian Employment Credits — proposed Tax Extender Act of 2017 would retroactively reauthorize credits After passing the TCJA, GOP leaders turned their attention to averting a government shutdown. Ultimately, President Trump signed a Continuing Resolution (CR) on December 22, 2017 to fund the government through January 19, 2018. The CR does not include a package of measures drafted by the House Ways and Means Committee that would delay a number of taxes associated with the Affordable Care Act, nor does it include any extensions for the so-called "tax extenders," a group of tax incentives that expired at the end of calendar 2016 (including the Federal Empowerment Zone and Indian Employment Credits, amongst others). Supporters had hoped that both packages would be included in end-of-year vehicles. Notably, on December 20, 2017, Senator Hatch (R-UT) filed S.2256, the Tax Extender Act of 2017, which would address a number of expired and expiring tax provisions. Importantly, it would reauthorize the Federal Empowerment Zone and Indian Employment credits, retroactive to January 1, 2017, through December 31, 2018. The bill is expected to be considered in early 2018. The filed version is located here. Employee Retention Credits — H.R. 4667 proposes new California wildfires credit and modification to Hurricane Harvey, Irma, and Maria credit rules Shortly after the House passed the CR, the House also passed H.R. 4667, which provides supplemental appropriations for disaster relief for areas impacted by Hurricanes Harvey, Irma, and Maria and the California wildfires. Importantly, Section 5003 of H.R. 4667 would create an employee retention credit for employers in California wildfire disaster zones. The requirements for the California wildfires employee retention credit track closely to the Hurricane Harvey, Irma, and Maria employee retention credits created by the Disaster Tax Relief and Airport and Airway Extension Act of 2017 (P.L. 115-63; Disaster Tax Relief Act) on September 29, 2017. The Hurricane Harvey, Irma, and Maria employee retention credits are available to employers that have locations in hurricane disaster zones that were rendered inoperable as a result of one or more of the hurricanes and continued to pay wages to employees during the inoperable period. The credit is equal to 40% of qualified wages (maximum $2,400 credit per employee). Disaster zones are defined under H.R. 4667 and the Disaster Tax Relief Act as those portions of the disaster area determined by the President to warrant individual or individual and public assistance from the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. In addition to creating the California wildfires employee retention credit, Section 5101 of H.R. 4667 would modify the Hurricane Harvey, Irma, and Maria employee retention credits by amending Sections 503(a)(3), (b)(3), and (c)(3) of the Disaster Tax Relief Act such that the rules of IRC Section 280C(a) would apply. The original Disaster Tax Relief Act as signed into law on September 29, 2017, did not explicitly require employers to apply Section 280C(a). This modification would mean that employers that claim the Hurricane Harvey, Irma, or Maria employee retention credits must reduce their deduction for salaries and wages by the amount of the credit. The same rule would apply to the California wildfires employee retention credit. Note: On December 14, 2017, the IRS released draft Form 5884-A, Credits for Affected Disaster Area Employers (for Employers Affected by Hurricane Harvey, Irma, or Maria), and draft Instructions for Form 5884-A. Form 5884-A is used to claim the employee retention credits. The updated Form 5884-A tracks closely to previous versions of Form 5884-A for past employee retention credits (e.g., Hurricanes Katrina, Rita, and Wilma in 2005, Kansas Storms in 2007, and Midwestern Disasters in 2008). However, noticeably absent is the instruction for employers to reduce their deduction for salaries and wages by the amount of the credit. If H.R. 4667 passes, the IRS may issue new draft versions of Form 5884-A and instructions to that effect. To date, the draft Form 5884-A and draft instructions represent the only information published by the IRS in relation to the employee retention credits for Hurricanes Harvey, Irma, and Maria. For more information on the Hurricane Disaster Zone employee retention credit see our special report. Document ID: 2017-2226 |
