New federal tax incentives for hiring workers, along with recent revisions in tax benefits to the federal economic stimulus package, are designed to strengthen the Americas small- and medium-size businesses.
President Obama signed the Hiring Incentives to Restore Employment Act (HIRE Act) on March 18, giving smaller businesses $18.6 billion in tax provisions, including $13 billion in tax breaks for hiring and retaining qualified workers.
That same week, revisions were made to the stimulus package, including incentives for buying new equipment, along with a tax tool that allows businesses to apply losses suffered during the current year to earlier years.
Mel Schwarz, director of legislative affairs for Grant Thorntons national tax office, says many of the provisions will strongly benefit small- and medium-sized businesses, especially manufacturers.
According to Schwarz, the HIRE Act is significant in that if a business hires someone who was unemployed for the previous 60 days, the business is automatically exempt from paying the employees social security tax, which is normally 6.2% of their wages. Schwarz estimates that could add up to nearly $1,000 over the course of a year. Plus, there is no limit to how many employees a business can claim this benefit for, and a company of any size can take advantage.
When you get right down to it, what it costs to hire the next person tends to be a more sensitive question in smaller businesses than it is in larger businesses, says Schwarz. The marginal impact is huge. And an awful lot of job creation is traditionally associated with small businesses, so this is a significant help to them.
Michael Hardgrove, international tax partner with PricewaterhouseCoopers, points out that another notable extension from the Economic Recovery Act was a rule that increases the maximum deduction allowed under whats called the Section 179 provision. Small businesses are allowed to deduct as an expense a portion of the cost of new equipment in the year they buy the assets, rather than depreciating the value over time. The deduction phases out when a business spends more than $800,000 annually, making it almost exclusively for small businesses.
These efforts come at a time when more and more manufacturers are competing on a global scale. While the U.S. market is steadily improving, so too are the economies of many competitors, bringing U.S. tax rates into focus.
That sense of continuing globalization and the fact that certain economies are rebounding faster than others is really a positive for smaller and middle-sized manufacturers, as long as theyre allowed to operate on a level playing field from a tax perspective, says Hardgrove. Theres a lot of good news out there in terms of the recovery of the economy, but U.S. taxation is one of the areas where theyd like to continue to see some relief.