Cash for Coporate Clunkers

Below is a article from CNN-Money regarding a new stimulus that will provide cash for hiring employees. Politics and deficit concerns aside, I'd rather see the money in the hands of my small business clients than in the hands of the government...or bank executives.

When President Obama called last month for a new tax break to spur job creation, critics blasted him for offering no specifics. On Friday, Obama plans to fill in the details: He wants to give businesses a $5,000 tax credit for each net new employee they hire this year.

Job creation "must be our No. 1 focus in 2010," Obama said Wednesday night in his State of the Union address. "We should start where most new jobs do -- in small businesses."

The $5,000 per-worker tax credit would be available to businesses of any size, and would be retroactive to the start of the year. Startups launched in 2010 would be eligible for half of the tax credit.

Obama is also proposing a reimbursement of the Social Security taxes businesses pay on increases in their payrolls this year. Firms could earn the credit by raising wages or increasing the hours of their current workers, as well as by hiring new employees. The tax credit would be adjusted for inflation, and would not apply to wage increases above the current taxable maximum of $106,800.

The proposal will cost $33 billion, according to estimates released by the White House, which expects 1 million businesses to benefit from it.

While any business would be eligible for the tax breaks, the refund would be capped at a total of $500,000 per firm, a move the White House hopes will steer the biggest benefits to the smallest companies. Firms eager for cash could claim the credits on a quarterly basis, sparing them the wait before they file their annual taxes.

Hiring tax credits have been proposed before, and shot down in part because of their vulnerability to abuse. Senior White House officials say Obama's plan includes a slew of safeguards to prevent companies from gaming the system.

For example, companies would have to show net increases in their staffing and payroll to qualify. Businesses that cut 20 workers and hire five wouldn't be eligible, nor would those that lay off a $50,000 worker and hire two $20,000 staffers.

Main Street's cash crunch: Several in Congress are already on board with the idea of tax credits for hiring. Senators Charles Schumer, D-N.Y., and Orrin Hatch, R-Utah, unveiled their plan, which has some similarities to Obama's, in an op-ed on Wednesday.

But some business owners say the idea puts the cart before the horse.

"I need money before I hire people, not after I hire them," said Jimmie Hughes, the owner of Grand America in Richardson, Texas. Hughes' 15-person company sells supplies for a range of businesses.

Jeff Moss, the owner of Pancho's Border Grill in Great Neck on Long Island, N.Y., had a similar reaction.

"In my line of work, the restaurant business, jobs are going to be created or deleted as a direct result of customer traffic," Moss said. "It is not like we are a Fortune 500 company, where we are going to be adding hundreds of jobs and those credits are going to be adding up. We are a small business. If we are adding one employee, the effect on the bottom line is going to be negligible."

My take is that the plan will be generally ineffective. If you don't need an employee, paying someone $20,000 or more to make $5,000 tax credit is simply not sound economics. Further, the enforcement is going to be a nightmare for the IRS...abuses will certainly occur and the program will be pulled within a year or two.

For more information on your Small Business, contact a Seattle Small Business Attorney.

Our Firm:

Weitz Law Firm, PLLC
5400 Carillon Point
Kirkland, WA 98033

(425) 889-9300

Hiring New Employees in Washington

For many small businesses, one of the most common hiccups in the legal process is how to effectively bring on new employees. Below is an overview of the steps that should be taken when your business is able to hire new employees. All businesses are different, you should consider meeting with a Seattle Small Business Law Firm.

1) Provide a W-4 form update hiring a new employees for Federal Tax / Withholding purposes. W-4 Form Here.

2) I-9 Form to verify ability to work in the United States: Click here for I-9 Form.

3) Report Hiring to DSHS: Clink here.

4) Labor & Industries Worker’s Compensation Insurance:

This information should have been provided to you after you applied for your Master Business License). If not, click here.

5) Required Posters:

Click here for guidance on Federal Postings needed.

6) Taxes Issues:

See great IRS Publication for Small Business Taxation Issues: Click here.

Finally, you should submit a W-2 to the IRS at the closing of the year. Click here for W-2.


For Independent Contractors:

* Remember, you do not need to withhold taxes for ICs, however, the government will scrutinize the relationship to verify the relationship is not an Employee relationship disguished as a IC.

1) Gather all information regarding their business
2) Complete Independant Contractor Agreement
3) Gather an W-9
4) Treat them like an IC!!
5) Issue 1099 Misc at the conclusion of the taxable year

For more information, see a Kirkland Small Business Attorney.

Our Firm:

Weitz Law Firm, PLLC
5400 Carillon Point
Building 5000, 4th Fl
Kirkland, WA 98033

T: (425) 889-9300