PORTFOLIO

Tax Incentives to Hire, Retain, or Compensate Employees (Portfolio 514)

Be a trusted advisor to your clients with Bloomberg BNA Tax Portfolios. In this portfolio, Premier tax experts bring together in one place analyses of the many income tax provisions designed to encourage employers to hire employees and to retain those employees. The portfolio separates the analyses into three categories. The portfolio also presents a history of the provisions as they have been added, expanded, and modified. 

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DESCRIPTION

The Tax Incentives to Hire, Retain, or Compensate Employees, No. 514-1st portfolio brings together in one place analyses of the many income tax provisions designed to encourage employers to hire employees and to retain those employees. The portfolio separates the analyses into three categories. The portfolio also presents a history of the provisions as they have been added, expanded, and modified.
First, the portfolio discusses incentives to hire or retain employees that are provided in the form of exclusions from gross income. This brings together in one place analyses of amounts that are taken into account in computing gross income on account of employment decisions.
Second, the portfolio discusses incentives to hire or retain employees that are provided in the form of deductions. This brings together in one place analyses of amounts that are taken into account in computing taxable income on account of employment decisions.
Third, the portfolio discusses incentives to hire or retain employees that are provided in the form of credits. This brings together in one place analyses of amounts that are subtracted in computing tax liability on account of employment decisions.
Among other items, the portfolio discusses the tax treatment of Manpower Act payments, contributions to Black Lung benefits and employer liability trusts, the work opportunity credit, the welfare-to-work credit, and the Indian employment credit.


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AUTHORS

Bloomberg BNA Portfolios are written by leading tax professionals who set the standard as leaders in their fields. The Tax Incentives to Hire, Retain, or Compensate Employees, No. 514-1st portfolio was authored by the following attorneys.  

 

JAMES EDWARD MAULE, ESQ.

James Edward Maule, Professor of Law, Villanova, has made major contributions to widely used tax treatises such as Bloomberg BNA Tax Management Portfolios, including 560 T.M., Income Tax Basis: Overview and Conceptual Aspects, 590 T.M., Taxation of Real Estate Transactions, and 1510 T.M., State Taxation of S Corporations. Among his other books are Better That 100 Witches Should Live: The 1696 Acquittal of Thomas Maule of Salem, Massachusetts, on Charges of Seditious Libel and Its Impact on the Development of First Amendment Freedoms, and Preparing the 1065 Return. He has been a contributing author to many books such as Bloomberg BNA Tax Practice Series. Professor Maule also has written a number of articles, including: No Thanks, Uncle Sam, You Can Keep Your Tax Break, 31 Seton Hall Leg. J 81 (2006), Instant Replay, Weak Teams, and Bad Calls: An Empirical Study of Alleged Tax Court Judge Bias, 66 U. Tenn. L. Rev. 351 (1999), Tax and Marriage: Unhitching the Horse and Carriage, 67 Tax Notes 539 (1995), and Getting Hamr'd: Highest Applicable Marginal Rates That Nail Unsuspecting Taxpayers, 53 Tax Notes 1423 (1991). Professor Maule has authored several ABA Tax Section Committee reports on S corporations and partnerships, and many columns in professional periodicals. In addition, he has written computer-assisted legal educational exercises and computer programs. He also has a strong interest in First Amendment history and church/state issues.

 

Professor Maule is a member of the Advisory Board on U.S. Income of BNA Tax Management, Inc., and has presented many CLE programs on taxation and application of the Internet to the teaching and practice of law. He is a member of the ABA Tax Section, for which he has chaired several subcommittees and has served on a variety of committees and task forces.

 

Credentials / University of Pennsylvania (1973); J.D., Villanova University (1976); LL.M. (Taxation), George Washington University (1979); lecturer, Villanova University Graduate Tax Program and Tax Forum CLE Programs; lecturer, Philadelphia Bar Association Tax Section; member, U.S. Income Advisory Board, Tax Management Inc.; former attorney-advisor, United States Tax Court, Judge Herbert L. Chabot; former attorney-advisor, Chief Counsel to the Internal Revenue Service; former Editorial Advisory Board member and Columnist, Journal of Limited Liability Companies; former lecturer, ALI-ABA; former lecturer, Tax Management, Inc. & Continuing Legal Education Satellite Network; former lecturer, Pennsylvania Bar Institute; former lecturer, Georgetown University Law Center Institute on State and Local Taxation; former lecturer, The Dickinson School of Law CLE Programs; member, American Bar Association, Section of Taxation, Committee on S Corporations (Consultant and former Chair, Subcommittee on Subchapter S and State Law; former Chair, Subcommittee on Comparison of Partnerships and S Corporations); member, American Bar Association, Section of Taxation, Committee on Teaching Taxation (former Chair, Subcommittee on Manuscripts and Unpublished Teaching Materials; member, Subcommittee on Important Developments); member, American Bar Association, Section of Taxation, Tax Practice Management Committee; member, American Bar Association, Section of Taxation, Formation of Tax Policy Committee; member, American Bar Association, Section of Taxation, Committee on Tax Structure and Simplification; former Chair, American Bar Association, Section of Taxation, Phaseout Tax Elimination Project; former member, American Bar Association, Section of Taxation, Task Force on Pass-Through Entities; former member, American Bar Association, Section of Taxation, Task Force on Legislative Recommendation No. 86-1; former member, Philadelphia Bar Association Tax Section; author and owner, TaxJEM Inc., publisher of computer assisted legal instruction programs; owner, JEMBook Publishing Company, publisher of law and genealogy books; author of numerous books, monographs, and book chapters; contributor to various tax periodicals.


TABLE OF CONTENTS

Portfolio Description

Authors

Technical Advisors

Description

Detailed Analysis

I. Introduction

A. In General

B. Historical Background

1. In General

2. Developments During the Era of the Internal Revenue Code of 1954

3. Developments During the Era of the Internal Revenue Code of 1986

II. Employment Incentives in the Form of Exclusions and Exemptions

A. State and Local Tax Incentives to Hire or Retain Employees

B. Manpower Act Payments

C. Exemption From OASDI Portion of FICA Taxes

III. Employment Incentives in the Form of Deductions

A. Employment Generally

B. Employer Contributions to Qualified and Other Plans

C. Social Security Payments Made With Respect to U.S. Citizens Employed by Foreign Subsidiary Corporations

1. In General

2. Section 3121(l) Agreement

3. Foreign Subsidiary Corporation

D. Black Lung Benefit Trust Contributions

1. In General

2. Payment

3. Limitation

a. In General

b. Funding Determinations

4. Carryforwards

E. Employer Liability Trust Contributions

1. In General

2. Allocable to the Taxable Year

F. Deduction Limitation for Employment Credits

1. In General

2. Controlled Groups and Commonly Controlled Businesses

IV. Employment Incentives in the Form of Credits

A. Work Opportunity Credit

1. In General

2. Computation of Credit

a. In General

b. Qualified First-Year Wages

(1) In General

(2) Qualified Summer Youth Employees

c. Qualified Second-Year Wages § 51(e)

3. Wages

a. In General

b. Special Rules

(1) Agricultural and Railway Labor

(2) Successor Employers

(3) Employees Performing Services for Other Persons

c. Exceptions

(1) On-the-Job Training Payments

(2) Work Supplementation Payments

(3) Payments During Labor Disputes

(4) Coordination with Payroll Tax Forgiveness

(5) Payments to Employees Hired After Expiration of Credit

4. Members of Targeted Groups

a. Targeted Group Classification

(1) In General

(2) Qualified IV-A Recipient

(3) Qualified Veteran

(4) Qualified Ex-Felon

(5) Designated Community Resident

(6) Vocational Rehabilitation Referral

(7) Qualified Summer Youth Employee

(8) Qualified Supplemental Nutrition Assistance Program Recipient

(9) Qualified SSI Recipient

(10) Long-Term Family Assistance Recipient

(11) Hurricane Katrina Employee

(12) Unemployed Veteran

(13) Disconnected Youth

b. Certification Requirements

(1) In General

(2) Incorrect Certifications

c. Designated Local Agency

d. Hiring Date

5. Disqualified Individuals

a. In General

b. Related Individuals

c. Nonqualifying Rehires

d. Individuals Not Meeting Minimum Employment Period

6. Special Rules with Respect to Employers

a. Controlled Corporate Groups

b. Commonly Controlled Employers

(1) In General

(2) Common Control

(a) In General

(b) Parent-Subsidiary Group

(c) Brother-Sister Group

(d) Combined Group

(e) Special Rules

c. Tax-Exempt Organizations

d. Estates and Trusts

e. Regulated Investment Companies and Real Estate Investment Trusts

f. Farmers' and Other Cooperatives

7. Election to Forgo Credit

8. Deduction for Wages Reduced by Credit

B. Indian Employment Credit

1. In General

2. Computation of Credit

3. Qualified Wages and Health Insurance Costs

a. Qualified Wages

b. Qualified Health Insurance Costs

c. Nonqualifying Wages and Health Insurance Costs

d. Limitation on Amount

e. Special Rules

(1) Successor Employers

(2) Employees Performing Services for Other Persons

4. Qualified Employees

a. In General

b. Ineligible Employees

(1) In General

(2) Highly Compensated Employees

(3) Non-Business Employees

(4) Related Individuals

(5) Five Percent Owners

(6) Gaming Employees

5. Special Rules with Respect to Employers

a. Controlled Corporate Groups

b. Tax-Exempt Organizations

c. Estates and Trusts

d. Regulated Investment Companies and Real Estate Investment Trusts

e. Farmers' and Other Cooperatives

C. Employer-Provided Child Care Credit

1. In General

2. Qualified Child Care Expenditures

3. Qualified Child Care Resource and Referral Expenditures

4. Recapture of Credit

5. Special Rules with Respect to Employers

a. Controlled Corporate Groups

b. Estates and Trusts

c. Partnerships

6. Impact on Adjusted Basis

D. Differential Wage Payment Credit

1. In General

2. Eligible Small Business Employer

a. In General

b. Disqualification

3. Qualified Employee

4. Eligible Differential Wage Payments

5. Special Rules

a. Tax-Exempt Organizations

b. Estates and Trusts

c. Regulated Investment Companies and Real Estate Investment Trusts

E. Employer Social Security Credit

1. In General

2. Excess Employer Social Security Tax

3. Election to Forgo Credit

F. Small Employer Pension Plan Startup Cost Credit

1. In General

2. Limitation

3. Eligible Employer

4. Qualified Startup Costs

5. Aggregation Rules

6. Election to Forgo Credit

G. Empowerment Zone Employment Credit

1. In General

2. Computation of Credit

3. Qualified Zone Wages

a. In General

b. Special Rules

(1) Successor Employers

(2) Employees Performing Services for Other Persons

4. Qualified Zone Employee

a. Eligible Employees

b. Ineligible Employees

(1) In General

(2) Related Individuals

(3) Five Percent Owners

(4) Short-Term Employees

(5) Recreational Employees

(6) Farm Employees

5. Special Rules with Respect to Employers

a. Controlled Corporate Groups

b. Tax-Exempt Organizations

c. Estates and Trusts

d. Regulated Investment Companies and Real Estate Investment Trusts

e. Farmers' and Other Cooperatives

6. Empowerment Zone

a. In General

b. Conditions for Designation

c. Eligibility Criteria

d. Renewal Communities

(1) In General

(2) Designation Procedures

(3) Period Designation Effective

(4) Area and Eligibility Requirements

(5) Required State and Local Commitments

(6) Treatment of Governments

H. The Disaster Credits

1. The Hurricane Katrina Employer Housing Credit

a. In General

b. Amount Excludible from Gross Income

c. Qualified Employee

d. Qualified Employer

e. Gulf Opportunity Zone

2. Midwestern Disaster Area Employer Housing Credit

a. In General

b. Amount Excludible from Gross Income

c. Qualified Employee

d. Qualified Employer

e. Midwestern Disaster Area

3. Hurricane Katrina Employee Retention Credit

a. In General

b. Eligible Employer

c. Eligible Employee

d. Gulf Opportunity Zone

e. Qualified Wages

4. Hurricane Rita Employee Retention Credit

a. In General

b. Eligible Employer

c. Eligible Employee

d. Rita Gulf Opportunity Zone

e. Qualified Wages

5. Hurricane Wilma Employee Retention Credit

a. In General

b. Eligible Employer

c. Eligible Employee

d. Wilma Gulf Opportunity Zone

e. Qualified Wages

6. Kansas Disaster Area Employee Retention Credit

a. In General

b. Eligible Employer

c. Eligible Employee

d. Kansas Disaster Area

e. Qualified Wages

7. Midwestern Disaster Area Employee Retention Credit

a. In General

b. Eligible Employer

c. Eligible Employee

d. Midwestern Disaster Area

e. Qualified Wages

f. Applicable Disaster Date

8. Disqualified Individuals

a. In General

b. Related Individuals

c. Nonqualifying Rehires

d. Individuals Not Meeting Minimum Employment Period

9. Special Rules with Respect to Employers

a. In General

b. Controlled Corporate Groups

c. Commonly Controlled Employers

(1) In General

(2) Common Control

(a) In General

(b) Parent-Subsidiary Group

(c) Brother-Sister Group

(d) Combined Group

(e) Special Rules

d. Tax-Exempt Organizations

e. Estates and Trusts

f. Regulated Investment Companies and Real Estate Investment Trusts

g. Farmers' and Other Cooperatives

I. Small Employer Health Insurance Credit


WORKING PAPERS

Working Papers

Table of Worksheets

Worksheet 1 Former Indian Reservations in Oklahoma (Notice 98-45, 1998-35 I.R.B. 7)

Worksheet 2 List of Empowerment Zone Designations in Pub. 954, Tax Incentives for Empowerment Zones and Other Distressed Communities