OBAMA ADMINISTRATION PROPOSES 10% TAX CREDIT FOR NEW JOBS AND INCREASED WAGES

The following excerpt is from the Department of Treasury website: PROVIDE A TEMPORARY 10-PERCENT TAX CREDIT FOR NEW JOBS AND WAGE INCREASES Current Law Under current law, there is no generally available income tax credit for job creation or increasing employees’ wages. Reasons for Change Although the economy is recovering from a severe economic recession and the private sector has increased employment, a tax credit designed to stimulate job creation and wage increases could help put more Americans back to work, provide tax relief targeted at America’s small businesses, and strengthen the foundation of the economic recovery. Proposal Under the proposal, qualified employers would be provided a tax credit for increases in wage expense, whether driven by new hires, increased wages, or both. The credit would be equal to 10 percent of the increase in the employer’s 2012 eligible wages over the prior year (2011). Eligible wages are the employer’s Old Age Survivors and Disability Insurance (OASDI) wages. The wage base for determining the maximum amount of OASDI wages per employee is $106,800 for 2011 and $110,100 for 2012. The maximum amount of the increase in eligible wages would be $5 million per employer, for a maximum credit of $500,000, to focus the benefit on small businesses. For employers with no OASDI wages in 2011, eligible wages for 2011 would be 80 percent of their OASDI wage base for 2012. The credit would generally be considered a general business credit. A similar credit would be provided for qualified tax-exempt employers. The Secretary may prescribe rules with respect to eligible wages. The credit would only apply with respect to the wages of employees performing services in a trade or business of a qualified employer or, in the case of a qualified employer exempt from tax under section 501(a), in furtherance of the activities related to the purpose or function constituting the basis of the employer’s exemption under section 501. Self-employment income would not be considered eligible wages. A qualified employer means any employer other than the United States, any State or possession of the United States, or any political subdivision thereof, or any instrumentality of the foregoing. A qualified employer also includes any employer that is a public institution of higher education (as defined in section 101 of the Higher Education Act of 1965). For purposes of determining the $5 million limit on the maximum amount of OASDI wages available for the credit, all employees of all corporations that are members of the same controlled group (using the 80-percent ownership test for filing a consolidated return) would be treated as employed by a single employer. For partnerships, proprietorships, etc., all employees under common control would be treated as employed by a single employer. The Secretary may prescribe rules with respect to predecessor and successor employers. 6 The credit also would be available for increases in earnings subject to tier 1 Railroad Retirement taxes subject to OASDI rates (section 3111(a)). Similar benefits would be extended to non-mirror code possessions (Puerto Rico and American Samoa) through compensating payments from the U.S. Treasury. The proposal would be effective for wages paid during the one-year period beginning on January 1, 2012.