By Roy Deaver, Partner, International Services; Mark Woodward, Partner, State & Local Tax Services; and Susan Mehlman, Director, Compensation & Benefits Tax Services
Your employees can be among your most valuable assets—and retaining and attracting top talent is vital to your company’s financial success.
With competition fierce and workers expecting more from their employers in today’s landscape, it’s more important than ever to reduce costs elsewhere and reinvest those savings into employee recruitment and retention. Determining the right people-related opportunities to pursue takes a collaborative approach between a company’s human resource team and finance departments, determining the right strategy to help reduce a company’s tax liability and drive value to its bottom line.
Global Human Capital Strategy
Companies that compete in the global marketplace are often challenged with the added costs of having an international mobile workforce. Companies can strengthen their return on investment by designing a strategy that accounts for:
- Expatriate benefits
- Federal and state taxes
- Tax equalization calculations
- Payroll compliance
- Compensation reporting
Compensation and Benefits
A company’s compensation and benefits package is fundamental to keeping the best employees and attracting top talent. This can be challenging as it requires companies to determine how to best reward employees while delivering the most value from benefits dollars as well as how to measure the attractiveness of their benefits offerings in an increasingly competitive marketplace.
As companies experience generational change from within, their benefits package should also evolve to deliver meaningful benefits that resonate with employee expectations. This may involve thinking and developing nontraditional benefits for employees as well as offering them an opportunity to give back to their community in a meaningful way.
Communicating your benefits package is also important as the message adopted by the company will begin to shape your employees’ acceptance and excitement regarding the offerings and opportunities available. A communication strategy and the ability to measure the overall business impact from these benefits is critical and can assist the company in understanding employee engagement, which will drive profitability.
Aside from striking a balance between the cost and competitiveness of benefits options, companies need to tackle complexity at many levels—from understanding executive compensation plans, employee benefit programs, and health care offerings to navigating the cross-disciplinary rules and requirements that govern them. This can be a daunting but worthwhile investment.
Work Opportunity Tax Credit (WOTC)
The WOTC is a federal credit designed to encourage businesses that are growing quickly or have a large, diverse workforce to hire individuals receiving government assistance.
Depending on which target group an individual belongs, the maximum credit per new hire can range from $2,400 to $9,600 and must be claimed within 28 days of his or her start date. The ultimate value of the tax credit is determined by:
- The target group the employee qualifies under
- The number of hours worked
- The wages earned in the period of employment
Similar hiring credits for employers are being expanded on the state level as well, and multiple states are considering adoption of new hiring credit programs over the next few years.
Employer Credit for Paid Family and Medical Leave – IRC Section 45S
The new tax reform law, commonly referred to as the Tax Cuts and Jobs Act, creates a tax credit for eligible employers that voluntarily offer up to 12 weeks of paid family and medical leave annually to qualifying employees. The new credit is available for an employer’s tax year that begins in 2018 or 2019. It’s part of the general business credit reflected on Form 3800 that reduces a taxpayer’s income tax liability.
The employer-paid family and medical leave credit, IRC Section 45S, is nonrefundable but may be used to offset federal income tax. Discover how you can turn the Employer Paid Family and Medical Leave Credit into tax savings by filling out our complimentary benefits estimate request form.
California Competes Tax Credit (CCTC)
The CCTC is designed to help businesses grow their California operations or expand into the state by offsetting California state income and franchise taxes. Each fiscal year from 2018–2019 through 2022–2023, the CCTC committee will award up to $180 million to California businesses. Applicants—including any company with plans to grow, regardless of size, industry, or location—may request up to 20% of the total available amount each fiscal year.
Topics that arise during the application process include:
- A company’s current and prospective hiring plans
- The average amount a company pays its employees
- The current or future location of the company
For more information about the program, visit our dedicated page.
R&D Tax Credit
The R&D tax credit saves companies hundreds of thousands of dollars annually in state and federal taxes—all thanks to work they’re already doing. R&D isn’t limited to the work of dedicated scientists, and R&D credit eligibility is also much broader than many companies realize. It applies to:
- Product development
- New manufacturing processes
- Environmental improvements
- Software development
- Quality enhancements
One of the largest components of an R&D credit claim is generally the salaries paid to employees who conduct qualified activities. Money paid to the engineers performing qualified R&D activities—as well as first-line managers and personnel who directly support these engineers—can qualify, helping companies recover a portion of these employees’ wages.
The R&D tax credit also provides a payroll tax offset that’s available on a quarterly basis beginning in the first calendar quarter after a company files its annual federal income tax return. As outlined in our previous Insight, new businesses that need cash can now use the R&D credit for this purpose for up to five years—specifically, the first five years they have gross receipts.
Learn more about how to claim the R&D tax credit in our guide.
Multistate Employment Taxes
Companies that have employees who travel and work in multiple states—requiring personal income tax to be withheld in each of these states—often face complex tax issues, such as:
- Multistate employment withholding
- Unemployment insurance
- Independent contractor classifications
- Other state-specific payroll taxes
Understanding the various state payroll tax requirements can help companies make informed business decisions when internal policies are established.
Outsourced Finance & Accounting
To stay focused on building business, growing companies need solid financial management with a dependable accounting function—a resource they might not have in-house.
Outsourcing accounting functions to a third-party offers a reliable and economical option to companies that want to add expertise to their existing team or completely outsource their accounting and finance functions. It allows companies to pay for what they need when they need it while still giving them access to experienced professionals and other necessary resources.
We’re Here to Help
For more information on ways to help reduce your company’s tax liability through people-related strategies, contact your Moss Adams professional or visit our dedicated tax page.